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Some good news and bad news from Foster Wheeler (FWLT).

Good: Results were very solid in a very lumpy industry (quarter to quarter), stock is cheap. US growth is slowing (why is that good? I don't know but anything to do with the US is now "good" and the rest of the world is now "bad")

Bad: The company does business with the rest of the world which is imploding, concurrent to the coming US rebound. This is now the REVERSE decoupling theory - i.e. in the fall we were assured as the US falters it would be ok because the rest of the world would be immune - which we said was a joke. We were correct. But now the exact opposite is being promoted by the same jokers who gave us the original decoupling theory. The rest of the world will now devolve into chaos, but the United States of Subprime will be just fine thank you - even though we are the epicenter of the problems of the globe. Got it! Makes sense.

Bad: CEO who we like is set to retire in 2009.

Since fundamentals are for old-fashioned investors, I'll start throwing them at the bottom of these posts since their importance is neglible. I might even have to start a parallel blog - "FundamentalsAreForOldFogies.com" and post the fundamentals there. It will probably get 5 hits a day.

Just focus on the chart - it is horrid. Hence, even though we bought some late yesterday near the $49s we must dump this company growing 40%+ because the rest of the world is imploding or will be soon. Meanwhile we must clap like seals when Cisco (NASDAQ:CSCO) reports earnings... a whopping 4% year over year growth rate. Bless its heart - what a growth story. So I can get Cisco trading at a forward PE of 15, growing at 4% (ok I'll be generous, growing revenue at 8%), or Foster Wheeler for the same forward PE growing at 40% - but since the threat of a slowdown in growth to 30% is imminent I must sell the company growing 5x as fast to buy the slow growth one - aha - makes sense now. So repeat after me. Sell 40% growth rate, buy 4% growth rate. Clap for the US economy. Rinse. Repeat. (wait, doesn't Cisco have overseas exposure? Never mind that - details and facts can't be bothered with - take that stock up!)

Please note the gosh awful chart below - this is a 'terrible' company which is eking out a 40% growth rate. After the rest of the world succumbs to death its growth rate might drop to 35% or (avoid your eyes) 30%. At that time the forward P/E ratio of 15 that Foster Wheeler (FWLT) now sports will still seem too expensive. PEG ratio of 0.5 is far too overpriced. (in fact it's currently 0.375 PEG ratio) PEG = PE to Growth rate (below 1 is considered "cheap" for growth companies). Give me some Northwest Airlines (NWA) instead. See, when you have NO earnings you never become expensive - hence airlines are awesome purchases - they never can get too expensive. I'll try to get out of this piece of junk (NASDAQ:FWLT) somewhere around $57-$59 but maybe we won't get there and the stock can trade at $30 or so. It might even be too expensive there. Hopefully (if we are lucky) their earnings will go negative in 2009 and then this will be the type of stock people will favor. Unprofitable companies - the 2009 growth story!

For those few of you who are still so old fashioned as to follow fundamentals I submit the remaining portion of the post - me,  I'm typing it but I'm not reading it (ok I'm reading it but you shouldn't). This data doesn't matter - remember the world is going to hell in a handbasket and what today looks like 40% growth will really be -40% growth in a year as oil crumbles to $80. Or maybe $5. [New readers, please note sarcasm.]

  • Engineering and construction company Foster Wheeler Ltd (FWLT) posted better-than-expected quarterly earnings on Wednesday, but said its power plant business in North America was slowing. (wait, everyone is telling me North America is the place to be!)
  • Net earnings climbed to $160.8 million, or $1.11 a share, from $71.9 million, or 50 cents a share, a year earlier. Excluding an $18.3 million asbestos-related gain, the company posted quarterly earnings of $142.5 million, or 98 cents a share, topping analysts' average forecast of 84 cents per share, according to Reuters Estimates. (earnings growth nearly 100%? This is such a 2007 story, get me some auto stocks which are losing billions upon billions - that's where the action is - I don't want these lousy stocks with positive earnings anymore)
  • Revenues rose to $1.7 billion from $1.19 billion. (yes, but falling 90% NEXT year... at least... maybe 95%)
  • Foster Wheeler said its engineering and construction group booked $538 million in new orders during the quarter, bringing its backlog of work to $1.8 billion at the end of June, up 26 percent from a year earlier. (all this backlog will be cancelled except for US projects, so says the stock price)
  • But its power group added $191 million in new orders, sharply down from the $550 million booked in the year-ago quarter, as North American customers deferred prospective projects because of increased environmental scrutiny, rising costs and fears about the economy. (oops, not so much on the coming strength in the U.S.)
  • Backlog at the power group stood at $1.5 billion at the end of the quarter, up 10 percent from a year earlier. (so backlog still grew at the power group despite a big drop in North America - I wonder where the growth came from? Ah yes, the areas of the world that I am now told will be destroyed and cancel every project as crude goes to $5)
  • "In our (global power group) -- consistent with our guidance at the end of the first quarter of this year -- we are seeing delays but not cancellations in some North American prospects," Milchovich said in a statement.
  • The company would seek to offset that slowness by focusing on markets outside North America, he added. (no... no... no! Why? All those markets will be going back to living in the 1970s, sending the peasants back to their farms and shutting down their factories. The coming strength is in the United States - see all those airlines, autos, and retailers rallying? the stocks never lie - nope)

Now I see why the CEO is retiring. He is still of the mindset of 2007 - thinking there will be growth in the rest of the world. I pray the new CEO (hopefully under the age of 35 and an avid video game player) will realize the great growth potential of the United States - this is where the stock market should rebound, as domestic stocks are showing us the coming rebound in the domestic economy. The rest of the world is imploding as crude falling to $100 or less will show the rest of you soon. The hedge funds already know - watch what is going up the past 6 weeks. Hedge funds are far brighter than guys who work in the industry. All this silly talk of growth overseas ... psshflbt. Remember 2009 - the year the United States chugs along at 5% growth while the rest of the world devolves into chaos and anarchy. The stock market knows all and has telegraphed this to us (just like they telegraphed to us the boom of 1st half 2008 by taking the market to all time highs in October 2007). Get your airlines (but only ones which fly in the US), retailers (but only those that sell in the US), and auto makers (preferably those with 80%+ sales in the US). Because that's what the hot money is doing - so should you.



Disclosure: Long Foster Wheeler in fund; no personal position

Source: Foster Wheeler: Solid Results, If Anyone Cares