Wednesday, July 9, 2008

Fluor (FLR) v Perini (PCR) - a Rising Tide does not Lift all Boats

Fluor (FLR) and Perini (PCR) are in the same sector - infrastructure. That's about all they have in common. I have owned both at one time or the other, but clearly owning Perini (PCR) was a mistake. My thesis with infrastucture is to focus on the customer base - oil rich Arabs, trade rich Chinese, and essentially bankrupt (federal) US government with unending pocketbook (read: your taxes) who runs deficits to their hearts content. That was my error with Perini - unfortunately their customer base is heavily focused on non federal government Americans (although they are trying to change that) i.e. local governments, US customers who need credit lines - casinos for example [Jan 17: Perini Shows Collateral Damage of Tightening Credit + Slowing Economy]

Construction company Perini Corp (PCR) said Deutsche Bank on Wednesday delivered a notice of loan default to the developer of the Cosmopolitan Resort and Casino project under construction in Las Vegas, Nevada.

Now compare this to the type of projects Fluor is working on - wind energy [May 16: Fluor as a Play on Wind? $1.8 Billion says Yes], solar energy (huge contract with LDK Solar), business with Kuwait, business with the US Department of Energy [Jan 11: Infrastructure Companies Cleaning Up on Contracts] The chart below shows the 1 year relative performance and you can see, based on customer bases alone, the massive difference. The call in this group for long time blog readers has always been - focus on their customer base.

(click to enlarge)
Now with that said, my one concern in this sector is the increasing cost of steel might curtail "some" projects, even for cash flush foreign customers, but all things relative - we still want to focus on those with customers not having to deal with US credit markets, or local governments which actually have to balance a budget unlike our "bottomless pit of spending" federal government. And once again, this shows - even if you get the trend right, picking the right boat to ride the wave is still very important. We closed the last of our Perini last November near $56 (for a smallish loss) as the stock was acting technically weak (breaking support); 8 months later it's a $25 stock.

Long Fluor, LDK Solar in fund; no personal positions

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