Friday, September 12, 2008

Foster Wheeler (FWLT) Follows in Path of Potash and Joy Global

Again, it appears the larger companies with cash flow can fight back against the hedgies. The small cap stocks which are naked shorted to death have no chance, but at least some of these (middle to larger) companies have a way to provide resistance. Foster Wheeler (FWLT) joins the party
  • Engineering and construction company Foster Wheeler Ltd. said Friday its board approved a plan to buy up to $750 million outstanding shares.
  • "Fundamental market demand continues to be very strong and unchanged [and] we have accumulated record levels of cash," added Milchovich. Foster Wheeler stock is down 50% this year, closing Thursday at $38.30
  • We believe the buyback program presents us with a compelling opportunity for the creation of shareholder value, especially at a time when we have a very bullish outlook for the company. In particular, we have generated two consecutive quarters of all-time record net income this year; both business groups are operating extremely well; fundamental market demand continues to be very strong and unchanged; we have accumulated record levels of cash; and the prospects for continued business growth and cash generation continue to be excellent.
  • The program does not obligate Foster Wheeler to acquire any particular number of common shares and the program may be suspended or discontinued at any time.
Foster Wheeler is a $6 Billion market cap so $750M is 12.5% of their share count. What I don't like is unlike Joy Global and Potash they did not make it "firm" (i.e. we are going to do it for sure, as opposed to "this authorizes us to do it) and they did not set a firm date. So I don't look at it as positively as the other two. Because as I've warned many companies "authorize" to do buybacks and then never follow through. It is hard to tell from this press release if they plan to follow through or are just trying to cause shorts to cover. I wish they had worded it similar to the other two.

I expect more of this as these valuations are outrageous relative to growth.

EDIT 10:30 - as I've said, right now these commodity/global growth stocks look like financial stocks any number of times over the past year - very oversold and prone to bounce back. But the charts are broken. My expectation is they will rally into resistance and then fail. This is what financials have done for the past year and to the video game playing hedge funds (these are not companies with fundamentals, only stock symbols we move around on a daily basis) there is no discerning fundamentals. Until proven otherwise. If these stocks begin to break back over resistance levels than I'll change my mind. Until then I will be lightening up on all rallies into resistance. So I'm cutting Foster Wheeler (FWLT) on the jump from $33 a few days ago to near $42 from 1.7% to 1.2% of fund. I'll cut more if it can get to $44 which is the first level of resistance and then if it moves strongly above that level (along with its cohorts) I'll say this is something more than an oversold bounce. Until then I doubt everything in this market.

Long Foster Wheeler, Potash in fund; no personal position

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