Quite a Recovery for the Infrastructure Group

My 'focus' group for U.S. based Infrastructure names are the following (in order of market cap):

1. Fluor (FLR)
2. McDermott (MDR)
3. Foster Wheeler (FWLT)
4. Jacobs Engineering Group (JEC)
5. KBR (KBR)
6. Chicago Bridge & Iron (CBI)
7. Shaw Group (SGR)

I actually own a basket of all these companies aside from Fluor (FLR) which was a recent sale (of a smaller position) on technical weakness. Going through the charts tonight for this group, some interesting views in the short run.

Despite fantastic fundamental prospect, strong pipelines, and increasing backlogs - this group has been trashed with the rest of the market. While most of these names held the all-important 50 day moving average for the first two-thirds of the recent correction, all (aside from Chicago Bridge & Iron (CBI)) finally succumbed to the persistent selloff and all broke this key technical level. This would be a short term indicator to sell for those who only use technical analysis,d since stocks who exhibit this behavior generally break down further or at best hold "flat line" for a while.

Interestingly, in just a half week rally, all the names in this group (save McDermott (MDR)) have now rallied back above the 50 day moving average, many quite a bit over. As I was saying in the worst of the downturn, even the best performing companies were getting tossed out as people fled to such 'high growth' areas as Procter & Gamble for safety reasons. Yet another situation where one can nail the fundamentals, but in an environment where most every stock is viewed with disdain, one can lose money being long even the best names. I continue to like this group, along with agriculture as 'recession proof' global themes, but obviously in the worst of the selling, nothing is a safe haven. However, it is comforting to see such reversals and strong price action when we even gets a few back to back days of rallying.

I have lightened up a bit in these names as I don't really trust a sustained rally until the market proves otherwise, but a strategy to add back to these names will involve (a) step 1: buying back if they retest their 50 day moving averages and (b) step 2: if those levels fail, buying back at lows we reached at the height of this selloff. I hope I do get an opportunity to add exposure to these names at those lower prices so I can employ this strategy allowing me to 'bank' some near term profits while rebuilding back positions in this group.

Disclosure: Long all names above except Fluor in fund; long Foster Wheeler in personal account

Comments

[stephenrosenman]

infrastructure has enormous growth, companies have burgeoning backlog business, great visibility, good play on rising emergent countries, looking for oil and power. like flr, mdr, fwlt