Credit Suisse Bullish on Infrastructure in this Week's Barron's

Ironic that 2 weeks after Barron's itself seemed to come out bearish on the infrastructure group (by picking on Foster Wheeler in particular - although their comments could apply one and the same to everyone in the group) [Barron's Out With Negative Piece on Foster Wheeler (FWLT)], they have a piece this weekend from Credit Suisse that is very bullish. It basically emphasizes my points laid out numerous times... that this is not a end market that is going to go away if the US or W. Europe or Japan all go into recessions - these countries have their own needs and the cash to handle the situation no matter what happens to us.

I grabbed this from a message board so I don't have source link...

• WE RECENTLY HAD THE OPPORTUNITY to meet with the management teams of several industry leading engineering and construction companies including McDermott International, KBR, Chicago Bridge & Iron and Shaw Group.
• In summary, the takeaways from our meetings do not support the recent selloff in the stocks (off average of 22% year-to-date). Bidding activity remains extremely robust and capacity remains a real concern reflecting record levels of demand. Bottom line: Based on recent customer conversations, none of the companies are projecting a slowdown or potential slowdown in spending in the near future.
• We recommend buying a basket of engineering and construction names with exposure to the overall energy infrastructure spend including both oil and gas and power. (thanks, I already did that half a year ago) :)
• Forward-earnings multiples have compressed nearly nine points from early October (from approximately 26 times) to near historic-low levels. We use the 2002-2005 time frame as our base, as this depicts a more normalized cycle. In other words, this was prior to the emergence of the oil and gas and power cycle, and when growth prospects were much lower.
• To put this in perspective, the E&C group is currently trading at 17.5 times our 2008 estimates versus the historic range of 15 times to 20 times. Jacobs Engineering Group and Fluor remain at the high end of the range, but this is consistent as they are considered the bellwethers of the group.
• Projects continue to be economical as customers are reaping the benefits of record-high oil and gas prices despite recent commodity volatility. Front-end engineering and design (FEED) work continues to accelerate on the upstream side, a precursor for large engineering, procurement and construction (EPC) projects to come.
• We would also note that there are several differences with this cycle versus the prior. First, the current cycle is demand driven fueled by developing countries like China and India. It is also notable that most of the spending is slated to occur overseas, in particular, Asia Pacific and the Middle East. We believe this is a key point as current valuations indicate that investors appear to be incorrectly assuming that North America will be the primary driver of earnings growth in the coming years. Finally, national oil companies are becoming more important in the mix. (this I have been explaining month after month, without the access or ability to speak to management as an analyst would have - the writing is on the wall, and very clear - however I am glad those who speak to these people on a regular basis come to the similar conclusion I reached independently)

I think, we... as (mostly) Americans need to stop focusing so much inwardly and realize there is a whole brave world out there [A Tour Through the Middle East]. Many very hungry people on the cusp of 2nd and 1st world success over the coming decade. Spending time and interacting with people daily we are a very inward looking nation i.e. if it doesn't happen here it doesn't matter. This is reflected in news, entertainment, most all media (and why I try to read UK papers to see what is "really going on out there"). This is a very dangerous mind set, and partly to blame for many of the ills (in my opinion) hitting us. We did many great things in the past 60-80 years and appear to be resting on laurels of those people before us who did the hard work. We are in global competition and are still of the mindset of 50/60s/70s/80s/90s when we were the end all, be all. (except for USSR for a time). That's changing. The rest of the world is not decoupled, we (USA) are still a large gravitational pull - but each year that passes more and more companies, and people's will be able to be successful with or without us. I only point this out because when I see the negative cases against the agriculture, infrastructure, indeed coal stocks - it is all so focused on "Well if the US goes to recession, no sector or company can win - in fact the rest of the world will essentially grind to a halt ... until the US emerges as a butterfly from a cocoon ... and then the rest of the world will again prosper thanks to us."

Dangerous. Very dangerous. In 25 years it might be the exact opposite in fact, the way things are going. Which is a sad statement on the sorry state of leadership (political), public education, priorities etc. We can do a lot better. In fact we need to. People work hard but there is a difference between working hard and working smart. Hopefully we see that before others start lapping us. I sometimes wonder if a stock market essentially standing in place from where it was a decade ago is a type of precursor. (yes it had its up and downs but we are doing a lot of thrashing about to get nowhere fast). We're up 35% on the S&P 500 in 10 years... that's not even matching the inflation rate. Thankfully we still have pockets of rabid innovation that are creating products that the whole world wants, but clearly not enough to support the entire economy. If we spent half as much time on education as we did on creating paper currency bulls... just imagine how great things would be...

Meanwhile, we can hand wring once more about how infrastructure stocks are doomed to end the cycle because of subprime and US recession. Again - even though almost none of their customers could care one iota.

And once again, proof positive the one US customer with limitless pockets (as long as you take from the great great grandchildren your pockets never empty) is happy to pony up dollars for the services of these companies - McDermott (MDR) with $500M contract for nuclear components (part of an earlier announced $1.7B contract but now going into backlog officially)

Long all names mentioned except Fluor in fund; long Shaw Group, Foster Wheeler in personal account