I (very) quickly cut out URS (URS) from this basket, then AECOM Technology (ACM) - a Cramer favorite in August, had a brief flirting with Fluor (FLR) before sending her packing, and focused on some of the other names. One name that confounded me was Perini (PCR) - it's valuation is so cheap yet it's stock never acted very well.... I closed the position in November (more as a cash raising exercise) but the timing was very fortunate.
I'm a big believer in the stock action telling us a lot - as small investors we have no information advantage - the only thing we have is stock action. A stock acting weak for no apparent reason and especially in the fact of "good fundamentals" is probably telling us something stinks in the back kitchen. In fact, this might be happening to me in Crocs (CROX) as we speak. But this is part of the reason I like to buy stocks above major moving averages - the 'smart money' (ahem those in the know) are generally buying, so the price action confirms the fundamentals. (granted that can change at a moment's notice during an earnings season or conference call).
Back to Perini... again, a stock that is supposed to earn $3.44 this year... and is trading at 10x earnings at these prices, yet continues to implode. My main strike against it was, while it is technically an infrastructure stock it is not like the others I own in that it is (mostly) based on domestic and non energy projects (i.e. casinos, schools and the like) so a slowing US economy could hurt it more... versus say a Foster Wheeler (FWLT) or Chicago Bridge & Iron (CBI). However, I never expected this sort of putrid performance. The stock is now in the mid $30s or fully $20 below where I last sold... despite being in the 'right sector'. I don't really know "why" it is, but the technical action in the stock would of told us to sell, as it was constantly telling us to sell in the mid $50s as it broke its support throughout November, and even as late as early December (when it still traded in the mid $50s). So the small lesson here is sometimes your sales are just as important as your buys.
I assume something will come to the surface sooner or later to explain the Perini weakness, but again this is why I think every investor should at least have some very basic technical analysis in their toolbox. Does selling every stock when it breaks a key technical moving average (50 day or 200 day) work out? Certainly not. Nothing works all the times. And many times a stock will temporarily break one of these averages and then bounce right back (these are stocks I sometimes reduce exposure to when they break support, and then buy right back a week or two later when they close higher than a moving average). But by having this conviction and being relatively consistent you can save yourself some losses. The few stocks I have broken that conviction with are some of the bigger losers in the fund!
As for Perini, SmartMoney has some theories on why its been such a loser. It appears earnings visibility and backlog (esp in 2009), which I harp on constantly on why I like most infrastructure stocks, is not there for Perini.
- Perini specializes in casinos, and has also made good money in recent years in hospitals and civic infrastructure in Iraq and Afghanistan. The stock has performed miserably of late, falling by nearly a third in three months.
- I like the low-down stock valuation of 11 times this year's earnings forecast, a discount of more than 30% to the broad market. I'm impressed that Perini has topped Wall Street's earnings expectations by an average of 65% over its past four quarters. And I like all the business the company is writing up, which earned it a spot recently on a search for accelerating sales growth.
- But there are worrisome signs, too. While bookings have been strong over the past year, more than half of them are for add-ons to current projects, and not for new projects. Some major projects will be completed this year, and so sales and profits this year are seen increasing 13% and 7%, respectively, but 2009 looks less certain. Analysts, whose sales and earnings forecasts are far more useful than their "buy" recommendations and price targets, don't yet have much to say about 2009.
- Company insiders sold an astonishing number of shares last year. Chief Executive Ronald Tutor unloaded much of his stake by early December, most recently at $55 and change per share.
