Gold is the worst investment around. Anyone buying it now is doing so at their own risk, near the end of a bull run that’s apt to end badly.

A major clue gold’s time is up: institutions and hedge funds are starting to get out.

In October, for example, these big players reduced their long gold futures by -9%. Meanwhile, small investors added +5% to their long gold positions. It’s a familiar pattern in which large investors exit the market of an overheated asset in a timely fashion, leaving the little guy to drive the final run-up to the big pop.

I give gold up to another year, maybe two, before it peaks. From there, it’s all downhill.

Gold is so undesirable that I’d rather buy stock in a firm that was broke only four years ago due to $5.2 billion in lawsuits over asbestos in its products. The company came out of bankruptcy in October 2006 and has since resumed a leadership position in its industry.

Indeed, it’s set for a four or five-year bull run of its own that could see its stock rise +75% to +130%. I’m talking about none other than Owens-Corning (NYSE: OC), the company that makes pink insulation found in houses and commercial buildings.

Importantly, Owens-Corning’s asbestos-related legal problems are well behind it, and the incidents leading up to those problems are ancient history. The lawsuits I mentioned were for illnesses from exposure to asbestos-containing cement, insulation and other products manufactured and sold primarily during the 1950s, ’60s and ’70s, before the dangers of asbestos were widely known.

To prevent further litigation, Owens-Corning placed $1.7 billion in trust in 2006 to cover future asbestos-related claims. As part of the company’s bankruptcy deal, these claims must be filed against the trust, not Owens-Corning. Although the company had to issue (and still carries) $1.7 billion of debt to fund the trust, it has no legal obligation to put in any more money.

Reduced dependence on new housing
Despite a struggling economy, 2010’s sales have been strong and are on track for more than a +15% gain over 2009. Earnings are on course for a +75% increase from last year and are expected to grow by +15% to +22% annually for the next five years.

Owens-Corning has been doing so well (and should continue to) because it knows it can’t try to generate all its revenue in the new residential and commercial building markets, which are highly cyclical. To reduce its dependence on those sectors, the company has been turning more to the repair and remodeling market.

That market offers tremendous opportunity to increase insulation sales, since an estimated 80 million American homes are under-insulated. It’s already a major income source for the company’s roofing business, which gets nearly three-quarters of its revenue from this market.

To further shield itself from declines in new construction, Owens-Corning is increasing development of fiberglass-based composite materials. At $50 billion, the composites market is 15 times larger than the insulation market. Many industries use composites — the aerospace/defense, automotive and wind power industries, for example — to build their products.

Growing that side of the business should also accelerate global expansion. There’s strong foreign demand for composite products, and already about two-thirds of Owens-Corning’s composites revenue comes from countries like Brazil, China and India. By contrast, insulation sales are highly concentrated in the United States and Canada.

Financial condition and risks
Despite a big debt to fund the asbestos trust, Owens-Corning is financially sound. Annual free cash flow of nearly $300 million is far more than needed to cover interest expense. Thus, there’s extra cash for the buyback program approved last August by the Board of Directors, which authorized the repurchase of up to 10 million shares.

A current ratio of 1.6, a long-term debt/equity ratio of 0.45 and a leverage ratio of 1.9 also reflect financial strength. All are markedly lower than the industry averages.

Every company faces headwinds, though, including Owens-Corning. Although the company is diversifying, it still depends heavily on new construction. Downturns would obviously hurt profits, as they did during the recession.

There are the ever-present specters of competition and cost, too. Owens-Corning will be going head-to-head with formidable Asian rivals in the composites market, for instance, and its roofing business could sometimes face dramatic spikes in the price of asphalt and other product components.

Action to Take –> Follow the lead of large investors and sell gold, especially if it occupies a large portion of your overall portfolio, say 10% or more. I suggest trimming back so gold is no more than 5% to 7% of your portfolio.

Since people commonly devote 20%, 30% or more of their investments to gold these days, scaling back as much as I suggest could leave you with a lot of cash to invest. Owens-Corning looks like a good place to allocate a meaningful amount of that extra cash.