KHD Humboldt Wedag: A Recipe for Outstanding Appreciation

| About: KHD Humboldt (KHDHF)

KHD Humboldt Wedag International, Ltd. (KHD) has spent two years transforming itself from a financial services company into a global infrastructure company. Prior to November 1, 2005 the company was known as MFC Bancorp. The transition was completed in the 3rd quarter and now the company is focused on their core business of (from their website):

supplying proprietary technologies, equipment and engineering/design services for cement, coal and minerals processing. KHD through its subsidiaries offers their clients all over the world engineering services, machinery, plant and processes as well as process automation, installation and commissioning. The services include staff training as well as pre- and after-sales services through to feasibility studies and financing concepts. This array of supplies and services includes, in particular, the modernization of existing facilities for capacity increases and, for reducing the specific energy demand and the burden on the environment.

This stock interests me for several reasons:

First, KHD’s primary markets are Asia, Russia and eastern Europe. It also does business in the Middle East and Africa. All are strong growth areas for infrastructure.

Second, revenues are earnings are growing at 50% to 100% rates over 2006 quarters and year to date. The company’s backlog of signed orders is also growing: on Sept. 30 the backlog was $762 million, by Nov. 14 it was up to $925 million. The company has done $420 million in revenue for the first 9 months of 2007.

Third, the company has a PE of 21 on trailing earnings and over $9 a share in cash. The stock is very fairly valued for this type of growth. I believe the transition from financial services has not yet been noticed by the general market.

Finally, the company is followed by very few analysts. Yahoo finance shows one, TradeKing has no earning estimates available, there is very little info out on the Internet about the company. So you have a $1 billion market cap, international stock doing infrastructure business in emerging markets, that hasn’t been discovered. Sounds to me like a recipe for some outstanding stock price appreciation.

Disclosure: I am adding KHD to my hypothetical 20 Stock Portfolio. I currently do not own shares of this stock.

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