Rebuilding Your Portfolio with Engineering Stocks

There is a $600 billion infrastructure stimulus going on in China and rightfully so; this kind of stimulus creates jobs and value. Lucky for the Chinese, they do not have the same enormous debt and financial mess to deal with as the US, which is why they can easily proceed to growth issues. The Chinese are jumpstarting the boat, while the US is plugging the holes.

With the US unemployment rate running at 9.7%, Americans must now work overseas or be ready to be overqualified in their next job if they want to stay, or be ready to work for the government. Statistics show that the government pays well on average compared to other corporate jobs.

Infrastructure spending does create jobs. Chief Department of Transportation Economist Jack Wells said in an interview at the beginning of this year that 28,000 jobs will be created for every $1 billion spent on highway construction spending. It is really that phase where growth that came from consumer spending is now being replaced by public spending. It can be expected that as the private consumer postpones his spending and saves, the government will continue its spending binge over the next few years; that is why it is important that the government spends those dollars wisely in fixed asset investments that can set up the next era of growth.

The engineering stocks listed above are some of those infrastructure stocks that may benefit from the coming construction boom. They are well positioned in booming industries; for example MDR and SHAW are well positioned in the nuclear infrastructure building industry. Some of them have tremendous backlogs, like FLR which has $30 billion worth of future projects.

What investors saw this year is the effect of credit crunch wherein banks are hard pressed to lend to good projects because their balance sheets cannot allow them to. Investors saw a lot of project cancellations early in the year, which is why the price to earnings ratios for the group in general are not bullish.

Looking forward, as banks get healthy and willing to lend and the next round of stimulus begins, investors can expect infrastructure projects to kick in as the economy looks at restarting its growth engine. By the end of this year, expect the holes to be plugged already. Expect a positive re-rating of this industry before the year ends.

Disclosure: The author does not own the stocks mentioned in this article.

Comments

[Gravity404:]

FWLT is up today on an analyst comment. In the article he mentions the reason for not buying back stock with their cash is they are looking at acquisitions.

I would apprecaite any thoughts on potential targets. Anyone have any ideas?

Im long on FWLT, JEC, MD and trade ABB and FLR.

Sep 10 10:13 AM

[Gravity404:]

Perhaps a company like TPC??

Sep 10 10:27 AM

[Stone Fox C...:]

targets could be small companies in India or elsewhere in Asia. Hope they aren't planning anything major.

FWLT is breaking out so its likely still a good time to buy though the best time was back at the 200ema around 27.5

Sep 10 04:29 PM

[Bryan Gomez:]

Basically not buying back the stock for reinvesting reasons is pretty good for as long as their ROE is decent.


On Sep 10 10:13 AM Gravity404 wrote:

> FWLT is up today on an analyst comment. In the article he mentions
> the reason for not buying back stock with their cash is they are
> looking at acquisitions.
>
> I would apprecaite any thoughts on potential targets. Anyone have
> any ideas?
>
> Im long on FWLT, JEC, MD and trade ABB and FLR.

Sep 10 08:31 PM

[capital pains:]

How about paying a dividend instead ?
The buy on this stock was @ 14.75 not $21

Sep 25 12:03 PM

[Brian McMorris:]

What a smart piece this is. I agree 120% with your analysis of the opportunity. This is a great way to play the global / Asian market while investing in companies based in the USA. Eng Cos have inherently high Gross Margins, as well, which is the reason for the excellent ROE. You could throw KBR into that mix, along with MBR (McDermott) and CBI (Chicago Bridge and Iron).

With a global infrastructure buildout (consider the infrastructure in place in America and then multiply by 10 for Asia's rqmts the next 20 years), there will be decades of great performance in this sector.

Sep 25 02:40 PM