Friday, November 2, 2007

Time to Add to Infrastructure

I am doing some dip buying here as many of the stocks in this group finally retract to some support levels. I am taking a basket approach, as my goal entering 2008 is to increase infrastructure and agriculture exposure as 'safe' havens. I did an in depth look at this group a few weeks ago, and if you click here you will see an analysis of earnings revisions in the group back in August. Suffice to say, I've been a roaring bull and despite a huge run up in the names, I think all dips are buying opportunities for the next few years - they will get thrown out with the bathwater at times in this market - just an opportunity to enter. Most of these companies report in the next 2 weeks and I expect good things across the board.
  1. I initiated a new position in the largest infrastructure stock Fluor (FLR) - this is also the most expensive so I am not going whole hog. But as mutual funds come around to the need to be long this group in 2008, Fluor has the largest market cap at a measly $13 billion so it will be the most liquid way for funds to play the trend. I did not buy this one in August since it was the 'most expensive' but that did not stop the stock from making a monster move with the rest. The stock moved down to its 50 day moving average of $146 so I bought 60 shares ($8.9K) for a 0.8% position. Fluor was $172 a week ago so this is a 15% pullback from its recent high. Again the risk of buying any stock on a pullback to its 50 day moving average is it breaks that level and then the stock can truly dip (see Blue Coat Systems for an example) - however I like to buy at these levels rather than chase momentum stocks at all time highs.
  2. I re-entered my Shaw Group (SGR) position, which I had sold on the spike up after last earnings. Doh. Shaw had been the black sheep of the group, and I didn't follow it as closely as the other names in the group, but I've done a lot of reading on the name since and the more I read, the more I feel comfortable with the company. I sold a position bought at $50-$51, at $67, and the stock ran up to $77 in the weeks to follow, so I left some on the table there. That said, the stock has now dipped back to $70 today, which is just above its 20 day moving average so I am paying $3 more per share to get back into this position (not bad). The stock was as high as $75 this morning so it's a good place to start. I bought 200 shares for about $15K or a 1.25% position. Welcome back Shaw. If the stock falls further, I'd like to add in more scale.
  3. I keep building my KBR (KBR) position with another buy here in the $38s (50 day moving average) $4k
  4. I added to my McDermott International (MDR) position with another buy here in the $59s (20 day moving average) $6K
  5. I added to my Jacobs Engineering (JEC) position with another buy here in the $83s (20 day moving average) $6.3K
  6. I added to my Foster Wheeler (FWLT) position with another buy in the $143s (in between the 20 and 50 day moving averages) $5K
So again, I've adopted a basket approach, buying $45K worth of stock (about 3.8% of the portfolio) - perhaps 1 will disappoint on earnings as these companies have relatively 'lumpy' quarters and with the market's obsession for 1 quarter at a time in lieu of the big picture, one or the other might get taken down, but I'd just consider that another buying opportunity. Just watch the backlogs continue to grow. McDermott and Foster Wheeler are the cheapest on forward (and trailing) earnings, but I expect the whole group to get cheaper as we see earnings reported and guidance upwardly revised across the sector.

If any of these trading at the 20 day moving average swoon further in a market selloff, down to 50 day moving average - I will buy in larger scale. I did a similar plan on the selloff 2 Fridays ago, and then trimmed some portion of these positions as they all rebounded very strongly while keeping core positions in these long term holds.

Long all names in fund; long KBR in personal account

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