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Earnings growth is expected for the building materials industry in 1999 with the trends of consolidation, demographics, and the need for materials to renovate and remodel, although a slowing economy could affect new housing construction. There are the significant risk factors, however, of lower consumer confidence and higher interest rates in 1999. Investors need to concentrate on the most time stocks in this industry.

The building materials industry as an entity presents an attractive picture for investors as analysts rate it higher than most industrial market averages and predict that 1997 earnings will continue the pace set in 1996. he industry will benefit from new housing starts but is no longer dependant on construction, having branched off to work directly with the less variable repair and remodeling business. Investors, however, should consider the records of individual companies, especially those with low stock valuations.

Housing starts in 1996 were approximately 7% above 1995 and with pent-up housing demand exhausted, housing starts are expected to decrease 7% in 1997. An even performance by financial markets and the US economy in 1997 should result in an excellent economic performance by the building materials industry. The building materials industry is expected to outpace market averages during 1997.

Housing starts for May 1996 were above same-period totals in 1994 and 1995, and will increase through 1996, although they were down on a monthly basis. Spending for remodeling and repair has increased 5% in 1996 over 1995, and is expected to increase 5% to 7% annually through 2001. In addition to property resales, remodeling and repair will provide demand for building materials. Several stocks have potential for 1999-2001, although the industry has average timeliness.

Housing starts are not expected to be as strong in 1996 as they were in 1994 but repair and remodeling contracts are expected to increase in 1996 compared with 1995. Mortgage rates have increased and unsold homes are expected to remain at a high amount especially in the northeastern US. Building material company stocks are expected to remain average throughout 1996.

Several companies in the business materials industry are restructuring to refocus their core operations. Ply-Gem Industries Inc, Masco Corp, and Armstrong World Industries Inc have all divested nonessential businesses. Home construction will be somewhat higher in 1996 than in 1995, and, with repair expenditures, allow the industry to mirror the market. Individual stocks in this industry have good investment potential.

Earnings have declined in the building materials industry over the last six months, due to weather and a 10% decline in housing starts in the first six months of 1995. There will be increased demand and recovery in both commercial and residential materials sales with lower mortgage rates and other factors. These stocks will perform well for the next six to 12 months and are also good investments for the next three to five years.

Building materials industry sales growth slowed in the 2nd qtr of 1995 due to higher inventories. Residential construction and subsequent building materials demand are expected to increase with mortgage rates under 8% again. Demand for building materials will also increase with residential trading down and first-time house buying. These stocks are recommended for investment for the next three to five years.

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