An International Wealth-Builder

The following alert was sent out July 9 notifying subscribers to Morningstar's InternationalInvestor newsletter that I had just bought shares of  CRH  for the newsletter's real money Passport Portfolio. This is just one example of the investment opportunities overseas. For more international picks, try a subscription to InternationalInvestor.

CRH is a diversified building-materials group headquartered in Ireland but operating worldwide. It is number one in concrete products, asphalt, and architectural glass in the United States, and it is also a large supplier of construction accessories, aggregates, and readymix concrete in the U.S. In Western Europe, it is number one in concrete products and construction accessories. It is growing rapidly in Eastern Europe, where it is now number one in building materials in Poland, number one in cement in Turkey, number three in cement in Poland and Tunisia, and number one in paving products in Slovakia. It also owns a series of DIY (do-it-yourself) stores in the Benelux countries. With the slowdown in the U.S., Ireland, the U.K., and Spain and growth in Eastern Europe, its sales are about 40% in the U.S., 40% in Western Europe, and 20% in Eastern Europe. By product, about 55% of sales are materials, 20% are concrete products, 13% distribution, and 12% other products.

I view CRH as kind of a cross between  Cemex (CX),  Vulcan Materials (VMC), and  Home Depot (HD). Like Cemex and Vulcan Materials, CRH has been able to raise prices while volumes have decreased, which helps to maintain sales and margins. Although I expect profits to decline in 2008--for the first time in 16 years, I think the firm is continuing to strengthen its long-term competitive position. It has been steadily growing through acquisitions, and it has the balance sheet to continue to make acquisitions through this slowdown. It is also buying back stock.

The stock is trading a bit below $25 versus our fair value estimate of $48 and Consider Buying price of $36. Please see below for other valuation comparisons.

CRH Valuation Ratio Comparisons
Stock	P/E	P/B	P/S	P/CF	Yield (%)
CRH	6.2	1.1	0.4	3.8	4.1
Cemex (CX)	7.1	1.2	0.8	4.1	3.6
Vulcan Materials (VMC)	12.2	1.6	1.7	8.0	3.3
Home Depot (HD)	11.5	2.2	0.6	7.7	3.9

CRH pays a dividend twice per year, going ex-dividend in March and September with the March dividend being significantly larger than the September dividend.