With stock market indices approaching five-year highs, it's getting pretty tough to find strong companies with both growth prospects and value. One company that fits the bill is EMCOR Group Inc. (NYSE:EME).
According to survey results released January 14, 2013, by the Associated General Contractors of America and Computer Guidance Corporation, "significantly more construction firms are planning to add new staff than plan to cut staff while demand for many types of private sector construction projects should increase this year."
The results of this survey point to an optimistic business outlook for general contractors, and with EMCOR Group Inc. as an industry leader.
According to its company website, "EME is a Fortune 500 company with estimated 2013 revenues of $6.5B. It is a leader in mechanical and electrical construction, energy infrastructure and facilities services. A provider of critical infrastructure systems, EMCOR gives life to new structures and sustains life in existing ones by its planning, installing, operating, maintaining, and protecting the sophisticated and dynamic systems that create facility environments---such as electrical, mechanical, lighting, air conditioning, heating, security, fire protection, and power generation systems---in virtually every sector of the economy and for a diverse range of businesses, organizations and government. EMCOR represents a rare combination of broad reach with local execution, combining the strength of an industry leader with the knowledge and care of 170 locations."
Three Reasons EME is a Good Bet
1. Top Pick for Hedge Funds. It is typically a good sign when hedge funds are buying a stock because 1) hedge funds have the financial capability to support or even move a stock, and 2) they have access to better research and information than everyday investors.
According to Insidermonkey.com, a website that tracks hedge fund activity, "at the end of the fourth quarter (of 2012), a total of 20 of the hedge funds we track held long positions on EME, a change of 11% from one quarter earlier."
The more popular hedge funds that are casting their vote of confidence in EME by accumulating the biggest holdings in the company are Royce & Associates, Adage Capital Management, Third Avenue Management, Sander Capital Management and Tudor Investment Corp., among others.
2. Growing Net Income. According to Investors.com, companies that are enjoying good earnings per share growth on a quarterly and annual basis are the most likely to appreciate in stock price. A quick look at the company's income statement shows an annual net income increase of 12% from 2011 to 2012. That is in-line with analyst expectation of 12.30% growth for the next five years.
3. Healthy Balance Sheet
Source: Yahoo! Finance
A closer look at the table above shows that EME's total debt is a just small fraction (25%) of its total cash holdings. That means it can pay off all its long-term debt just with the cash that it has, thereby diminishing the risk of it going bankrupt with its current state of business.
EME's book value per share is $20.10, indicating a healthy amount of assets tucked inside the price of each share.
The improving economy is spurring growing demand for EME's services. This is the primary reason behind the company's growing revenues and income.
EME's balance sheet is a strong indicator of stability and sound management. Finally, fund managers with successful track records have been loading up on this stock and it would be wise to follow suit, especially while it is still trading below analysts' price target estimate of $44.00 per share.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EME over the next 72 hours.
Business relationship disclosure: Black Coral Research is a team of writers who provide unique perspective to help inspire investors. This article was written Aman Jain, one of our Senior Analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: Black Coral Research is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.