We will take the hit here in OC. We have been wrong on the name and don’t want to compound that error by holding it in a volatile market that is inhospitable to underperforming smaller capitalization names. While our long-term research view on OC remains favorable, we expect 3Q 2014 results to be poor and are not sure if the company will lower 2014 guidance. In a less volatile market, we would assume that the weak 3Q numbers had already been priced in. In the current volatile market, that could prove a risky assumption.
We are pulling OC right as the company implements price increases in its roofing and insulation businesses. It will take a couple of quarters for those price increases to be reflected in financial results, however. As a result, we do not see a rush and expectations for 4Q 2014 are still elevated.
We do expect to re-enter OC and this might be viewed as a trading call. Those who have invested during (or traded in) periods of high volatility may agree that OC will likely have poor top-down risk style factors for such an environment. We could be wrong in pulling the name, but can also return to OC once the storm has passed – even if the shares are higher.
