This inward focus is something I focused on in a piece a few months ago [Jan 28: Credit Suisse Bullish on Infrastructure in This Week's Barron's] and I continue to believe people in the US do not realize a whole world is racing ahead with or without us, while we are stuck in the muck of our own design. [Jan 21: A Tour Through the Middle East] <---click on this link for some pictures to show you what I mean. I am going to use the news releases of Chicago Bridge & Iron (CBI) to show you explicitly what people seem to be missing by assuming the world is ending because the US is slowing down. It's an amazing array of contracts, just over the past 30 days. This is a position I am adding to today, and beginning to rebuild as the chart is finally firming up (but could still reverse at a moment's notice). I do believe this entire group will see a meaningful move later in the year since they have lagged year to date yet have just as good of fundamentals as many of the commodities which have raced off like greyhounds...
Here are the contracts and again, focus on WHAT they are building and WHOM the customers are. Almost none from subprime nation (us).
- Mar 26: $140M @ Middle East Petrochemical Complex
- Mar 27: $40M for Middle East Water Tanks
- Apr 3: $45M for Suncor's Oil Sands Storage Tanks in Alberta, Canada
- Apr 9: No terms for Qatar Ammonia Storage Tanks
- Apr 16: $150M for liquefied natural gas project in British Columbia, Canada
- Apr 17: No terms for Westinghouse Nuclear Project
I continue to really like this group and am waiting for the market to recognize the move from cyclical to secular growth which should expand multiples. For now, most charts in this group are very range bound for months on end - trading as if they are a US retailer. The longer they base in a range, the bigger the "eventual" move will be (could be in days, weeks, or months - who kn0ws). However, the customer bases of these companies are flush with cash, and hungry for product.... unlike the "early cycle" stocks the bulls are telling us are such a "value".
Long Chicago Bridge & Iron (and multiple infrastructure stocks) in fund; no personal position
5 comments:
just got a hold of FWLT's annual report yesterday and it looks like they are doing great. this whole sector seems to be a perfect example of: trade the perception not the facts. these names are firing on all cylinders yet the charts look meh and are downtrending for the most part.
i want to be in these names but there's no point just quite yet until "sentiment"/the charts turn around. don't know why people aren't understanding whats going on here
i own JEC and have been very frustrated with its performance even tho i believe the company is in good shape. one reason that i can think of might be that a lot of the backlogs in these infrastructure companies might get cancelled along the way if they are booked by some State governments when the state governments find they don't have the money for the projects because of bad markets. for example, California has lost a lot of tax revenues because of bad housing market and credit crunch. it's cutting big on education because of that. arnold doesn't know how to manage its money either just like me :)
jerry, most of these companies have little US exposure. Compare Perini (PCR) (which is needing schools, hospitals and local governments to fund their projects) it is in danger and been a terrible stock - For the exact reasons you listed above. I am focusing on the guys with heavy int'l exposure, especially energy projects - JEC is a great example and we own it. I have a mini basket of FLR, MDR, FWLT, CBI, JEC and SGR right now. KBR is another but too much Iraq exposure at risk, and URS is another but too much US exposure for me.
This is exactly why investors need to learn the basics of charting. Madhatter makes the point perfect. Fundamentals mean nothing until the "masses" come around to your view. I have small stakes in each but am waiting for the "favor" to return to these names. Unless you are a deep value investor willing to aquire a position when no one else cares and wait months, quarters, sometimes years for the market to figure it out. When the market returns to these names they will go to to the top of the portfolio (FWLT and MDR were positions #1 and #2 back in August 07). The valuations in some of these are just ridiculous considering their prospects but again, as you say, the perception is the risk - but thats why you have to focus those with customers mostly not in subprime nation. State governments are in serious trouble because they rely on home values for revenue. But the Federal government never runs out of money (printing presses work 24/7) so no risk with federal government at least...
The other thing I hate is they trade based on their most recent earnings report when these are multi year long term stories. One quarter FWLT and SGR were the favorites, now this quarter MDR and FLR are... no change in their business but its all based on the last Q.
I do believe this group will have a meaningful move in 2008 barring total systematic collapse of China and Middle East. My only worry is widespread global economic pain if global inflation truly spins out of control and food riots and governments start falling. That is still an outlier event but if it happens we have bigger fish to fry than investments. I continue to be aghast at how the food issue is being ignored - if prices continue to spiral up you are going to have major pockets of instability worldwide. The inflation the middle and lower classes face in these countries cannot be ignored - even the "high growth" countries we rely on to save our bacon as investors.
Anyone have thoughts on Manitowoc (MTW)? Their crane business is in great shape with a big backlog. Lots of international exposure. The stock got beaten down when they agreed to buy Enodis for their food service unit. They seem to get lumped in with lagging US construction market at times.
It's quite true that the 'market' ultimately sets the price. It doesn't matter than an individual is correct in the short term OR the long term. I like this sector alot, but I'm hesitant to buy, simply because I don't see the market beginning to favour the sector yet. I would accumulate on a good sell-off, however! A flush of sellers out is as good as a new batch of buyers. In the meantime, I'm quite content to let the fundamentals improve while the stock do nothing. It just makes the pop later on, that much stronger. Can't beat em - join em...
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