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Small Cap Construction, Engineering Lays a Foundation - TPC, INSU, LAYN, MTZ

|Includes:AEGN, LAYN, MTZ, Tutor Perini Corporation (TPC)

Tutor Perini, Insituform, Layne Christensen, and Mastec jumped today.

While the overall market managed to end the day only slightly higher than where it began, the small cap construction and engineering stocks were the leaders of pack, so to speak. The S&P 600 (small cap) Construction and Engineering Index rallied 3.2% thanks to some help from Tutor Perini Corp. (TPC), Insituform Technologies Inc. (INSU), Layne Christensen Co. (LAYN), and Mastec Inc. (MTZ). Though not all of those construction names are S&P 600 constituents, they each made gains that merit a closer look.

By the way, the strength was confined to the small caps in the industry... an oddity worth studying in itself. The cap-weighted S&P 1500 Construction and Engineering Index actually fell a tad. 

So what spurred the likes of Tutor Perini and Insituform upward? Great question, since there was no directly attributable news.

Most likely, traders took their cue from Fluor Corporation's (FLR) announcement that the company had been awarded a contract to design a nitrogen oxide reduction system for a power station Cheshire, England. Or, perhaps investors saw that India Globalization Capital Inc. (IGC) had been awarded a $2.1 million contract to supply iron ore to an un-un-named Chinese company. Both point to continued infrastructure spending on a global basis; some of those expenditures should eventually make their way onto Perini's, Mastec's, or one of its peers' books.

In fact, it was only last week Insituform was given the nod for a $6.8 million deal in Nevada. That brings the year-to-date total reward for Insituform to $24 million from that Nevada customer (the Clark County Water Reclamation District) alone.

Do Tutor, Insituform, Layne Christensen, or Mastec actually deserve their recent gains? That's a tougher question to answer. If the analysts are right, Tutor Perini shares as well as Mastec shares are a bargain, Insituform shares are fairly-priced, while Layne Christensen shares remain on the expensive side.

The table tells the story pretty well. Though all the forecasts are subject to change, there's a stark disparity when it comes to past and future fundamentals.


On the technical side, the confusion is even greater. One would think the two least expensive stocks - Tutor Perini and MasTec - would boast the most attractive charts. The fact is, however, that all four of these charts are a bit of a mess (and may or may nor reflect the fundamentals).

The chart of the S&P 600 Construction and Engineering Index itself is a little more predictable. Support is rising, while resistance is slightly falling. If the resistance line (at 120) should be toppled, it will be much easier to hold anything in this group and still sleep at night.

Nevertheless, based on an impending chart breakout and average forward-looking P/E of 17.8, today's buying may not have been unjustified. We're moving to a conditionally bullish on the small cap construction and engineering group.

We do not yet have buy signals for any of these four stocks, though we are closest to technical buy signals for (ironically) Insituform and Layne Christensen.