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By Jeremy Glaser | 02-25-2011 10:55 AM

Insulate Your Fixed-Income Portfolio With These Bonds

Morningstar's Rick Tauber thinks Owens-Corning's bonds are offering a fair yield given the building-materials firm's financial position and global business.

Jeremy Glasser: For Morningstar, I'm Jeremy Glaser. I'm here today with Senior Credit Analyst, Rick Tauber, to take a look at Owens Corning, and see if their bonds look attractive today.

Rick, thanks for joining me.

Rick Tauber: Thank you.

Glaser: So let's just start off on a high level. I think a lot of people are familiar with Owens Corning insulation, but can you give us a little bit of background about what else the company does?

Tauber: Sure. Actually the insulation, which people know was kind of the pink and Pink Panther product. It's actually the smallest of the company's three business units. They also have a roofing business, which is actually their highest margin business and a glass composites business, which is their biggest unit and has really a strong global presence. So, insulation is actually the smallest piece of the company's operations.

Glaser: Certainly it's a lot of building materials. When we think about housing right now, it might not be the brightest spot in the economic recovery. Without a lot of new construction, is that been a big drag on their results?

Tauber: It's definitely been a drag on the insulation unit, which is most tied to new residential construction and has actually been generating operating losses. So that's an impact primarily in that unit. The roofing business tends to be more repair and remodel, which is a little bit less cyclical than something tied directly to new housing. Composites is really tied to global industrials and industrial production, and it's got a number of different uses.

So, that's actually catching the front end of a strong global uptrend in industrial production. So overall, the trends look favorable with the exception possibly of the residential construction which we think is going to really ramp-up probably more in 2012 and beyond.

Glaser: That's certainly having trouble in the United States, but other parts of the world are building a lot faster. Have they been able to tap into some of that emerging market growth?

Tauber: They have and particularly on the composites business. In fact, they opened up a new facility in China and they are also expanding in Russia, for example. So, some of those emerging markets in that business are certainly some of the growth drivers going forward for the company.

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