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TMFDeej (99.47)

Infrastructure stocks are getting pounded for no reason / I'm a zombie

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August 12, 2008 – Comments (10) | RELATED TICKERS: FLR , CBI

Infrastructure aka engineering and construction stocks are getting pounded for absolutely no reason again today.  Two of my favorite companies in the sector are currently down more than 5% on the day.

The first is Fluor Corp. (FLR).  Yesterday after market close, FLR reported that its second quarter earnings more than doubled versus the same period a year-ago, handily beating analysts' estimates.  Revenue soared 56% in its oil and gas division and 86% in its power division.  Fluor even raised its earnings guidance for the year to $3.65 - $3.80 (from $3.30 - $3.45) versus a consensus estimate of 3.29 from analysts before its results.  Yet, here we are with the company getting absolutely smashed for no reason other than an analyst downgraded it because of the recent drop in the price of oil.  Yes, FLR has a fairly high P/E ratio and we are in a terrible market that often punishes expensive companies, but with the sort of growth that the company has experienced and expects to see in the future today's action looks like quite a buying opportunity to me.

Fluor quarterly profit more than doubles

The other company in this sector that I own and follow closely is Chicago Bridge & Iron (CBI).  Zacks agrees with my earlier assessment that the recent drop in Chicago Bridge & Iron represents a good buying opportunity (see blog post: Should you buy a collapesd bridge?).

I look at the massive charge that the company finally took on the U.K. LNG projects as a kitchen sink sort of quarter.  These projects has been hampering its results for a while now.  The finally had to "bite the bullet" as Zacks put it and take a massive charge to put this mistake behind them.  CBI is now working with a clean slate going forward.  Hopefully we won't see any massive cost overruns like this again in the future.  If we do, I would be extremely concerned.  For now I am giving the company the benefit of the doubt that this is an isolated incident. Zacks mentioned that problems like this will be much less likely for CBI going forward, now that approximately 70% of its new orders are on a cost-type basis.  It has raised CBI to a buy and it has a price target that is 38.3% than the company's current share price. Chicago Bridge & Iron Upped to Buy

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Man, what an amazing performance by U.S. Olympic swimmer Michael Phelps again last night.  Anyone who lives in the Eastern United States and has to get up early for work (5 AM here) is getting severely punished by the late start times for all of these events.  I'm going to be a complete zombie by the end of the week, but this is amazing, history-making stuff that's well worth the pain.

 

Deej

Long FLR & CBI 

10 Comments – Post Your Own

#1) On August 12, 2008 at 3:43 PM, megank12 (< 20) wrote:

Thanks for the great blog Deej.  I love reading it because you keep things timely and interesting and it's visually fun to look at with all the cool graphics and videos that you add in.  This blog's zombie made me laugh- I've been staying up way too late to watch the Olympics, too.  Keep up the good work!

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#2) On August 12, 2008 at 4:17 PM, DemonDoug (98.73) wrote:

Deej, if my theory is correct, the time to buy these stocks will be early to mid next week.  I'm going to get my dry powder ready.  I also believe that PBR and/or COP and whatever your favorite E&P or canadian oil sands company is will be right to buy early next week.

I gave a second look at CBI's numbers. 5.36B in annual revenue for a company with a market cap currently around 3.25B.  Excellent revenue growth.  I'm more inclined to go along with your one-time charge off thing, but I still stick to my miserly ways - I want CBI below 30/share.  

I agree with you on FLR.  But sometimes analyst downgrades give you a buying opportunity.  Anyway I think most analysts are basically just being paid by their bosses to give those ratings based on whatever the hedge fund side of the banking operations is doing.

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#3) On August 12, 2008 at 4:38 PM, abitare (99.38) wrote:

Crowded trades and profit taking, plus there is a commodity bubble people want out of, IMO.

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#4) On August 12, 2008 at 4:55 PM, kdakota630 (31.51) wrote:

That P/E Ratio of 709.60 for CBI can't possibly be right, can it?

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#5) On August 12, 2008 at 4:59 PM, DemonDoug (98.73) wrote:

kdakota, it's right, CBI lost money last quarter on the charges relating to the nat gas plant in the UK.

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#6) On August 12, 2008 at 5:00 PM, lquadland10 (< 20) wrote:

Its a traders market now the big wales are still out waiting for the bug crash.

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#7) On August 12, 2008 at 5:53 PM, WillSurfForFood (89.31) wrote:

DemonDoug, no one can accuse you of making vague predictions. It will be interesting if your theory proves out, luckily we won't have to wait long. The only prediction I have is that oil is going a lot higher in the longer term, a couple years out.

 Deej I feel your pain. I don't own any FLR but after seeing their earnings I'm thinking of picking some up, maybe I'll wait until early next week.  The extent to which many of these companies have been taken out to the woodshed has been surprising and a bit painful. It reminds me a little of 2001 except these companies have great earnings and the worst companies have been floating to the top for the last 6 weeks.

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#8) On August 12, 2008 at 7:07 PM, nuf2bdangrus (< 20) wrote:

I have been legging into MDR, BOLT, BQI, PAL, ABX in this giant selloff.  No one can predict the bottom, and the pending rally DD predicts (and I think he's right) may be a tradable one only, so I'm over 50% cash.  I would have waited on MDR if I saw earnings were coming, I had a long limit at 36, but when the stock bounced off the low 40's last week, I picked it back up at 41, just to see a cool 13% wiped off.  I legged into some deep ITM calls on MDR, Jan 09 20's I beleive.  I may be early on that too.  This market is ripe for s huge selloff, so I am keeping some shorts as hedge (COF, SKF, SRS which I legged into today at 83)

The infrastructure plays would do well if Dems win and economy sloes, as they would be the likely bennys of "work" projects.  When you're on the right side of the trade (i.e. cash) we like these opportunities.

 

And I am learning to say away from all/nothing, legging in/out of trades/investments.  This market demands it. 

 

Also snapped up some PBR, it's down from a split adjusted high 80's to 50.  Could go to 40.  Buy more and put in a drawer.

 None of these will have the run they had this year, and i actually would prefer slow and steady to huge runup....it makes holding easier.

 

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#9) On August 12, 2008 at 9:34 PM, Tastylunch (29.93) wrote:

Deej re: Fluor sell off

 this blog may be of interest to you, doesn't really add much but his take is interesting.

http://www.fundmymutualfund.com/2008/08/fluor-flr-to-hedge-fund-computers-world.html

Phelps is pretty undeniably awesome, but that Lezak anchor swim was the most impressive thing I've ever seen in swimming ( FWIW I used to swim competitively in college)

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#10) On August 12, 2008 at 10:13 PM, dexion10 (28.27) wrote:

INSIDERS DO NOT BELIEVE IN ENGINEERING STOCKS.

There has been a lot of insider selling at these engineering companies.  It's heavy selling.

Insiders at FLR sold heavily from $72 to $95... I see no reason to ride this pig.  Many insiders sold 10-20% stakes in the company 

The CEO of FLR sold options 8 years early and took only a 10% profit on those options.That is selling early and taking a small profit.

If you are affiliated with a investment company or if you are a high net worth investor you can view the transactions here:

https://www.insiderscore.com/scorecard.php?ticker=flr 

FYI:

peer company Shaw Group (SGR) including early exercise and sell transactions which indicate insiders don't have long-term confidenc. They were selling in the at $65 and now their stock is at about $53

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