Chicago Bridge & Iron Co. Will Keep Growing Steadily

| About: Chicago Bridge (CBI)

The ever-increasing demand for energy has meant booming revenues for companies like Chicago Bridge & Iron Co. (NYSE:CBI), which engages in construction and engineering services for natural gas, petroleum, and petrochemical companies. CBI also works with water, metals, and mining companies, among others, but it's best known for its work on refinery units, liquefied natural gas terminals, and the like.

CBI is in a very competitive business, but it has been securing many contracts, and revenues have more than doubled over the past few years. But it's not all roses for this company; margins have been hurt by high construction costs, and the second quarter saw net income down by more than 20% compared to the second quarter of 2006 -- despite the fact that revenues were up 36%.

Some analysts feel this company is too risky, but everyone agrees revenues are likely to keep growing steadily. The second quarter brought new awards of $2 billion, compared to $636.8 million in the second quarter of 2006; for the first six months of 2007, CBI has won contracts of $4.1 billion compared with $1.5 billion in the first six months of 2006.

It's this impressive backlog that encouraged Bear Stearns to release a positive report on the company; the Bear analysts expect a strong second half and a strong 2008, and argue that this is a company that will see some short-term pains for long-term gains. I think they're right, and this is going to be a stock to own for the next few years.

I also like CBI as a short term trading stock as the shares are very volatile these days so you can capture two or three points as it trades up and down within a range wide enough to offer some short term returns. Infrastructure companies like CBI are sensitive to interest rates changes because their projects are correlated to the cost of financing -- an important topic driving our fickle and hyper-sensitive stock market these days.

Type of Stock: A construction and engineering company serving the energy industries and their increasing demand.

Price Target: CBI has lost nearly $8 since mid July, and it lost about $5 in value after the second-quarter profits came in low. But I think this means you now have a chance to grab this at a discount and hold it through 2008. Bear Stearns expects the stock to hit $45 in the next 12 months. I think it's a good buy at $37, and anywhere below $40.