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Strategies & Market Trends : Value Investing

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To: J Mako who wrote (44648)	9/28/2011 7:12:20 PM
From: E_K_S	1 Recommendation Read Replies (3) of 78686

Hi JMako - Heavy Duty Construction Service Companies - Every one of the large construction companies that I follow (and several of those listed in the awarded contract directory) carry unique project/skill expertise. You can go to their Web sites and study their large awarded projects and the tasks that the prime contractor does and those that are subcontracted out. I have focused on two unique sectors: (1) Oil & Gas infrastructure (2) Electrical Generation & Power Infrastructure. I would say that based on their in house expertise/skills several of the prime players are preferred contractors which may give them an edge when bidding (this could be seen as "selective" type of mote). For example, CBI is considered a leader in building very large specialized fabricated steel tanks and connectors for very large infrastructure projects like LNG plants. They are know in the industry for their wielding expertise and even build nuclear containment vessels. Looking at each of the main player's web sites and reading the awarded contracts, you begin to get a feel for the major players and the type of contract awards they land. Jacobs Engineering Group Inc. (JEC) is know for their project management expertise and task scheduling. They do consulting work too that includes large scale project design. I am no expert but for the past few years I try to follow who's who in the industry and who is landing the larger projects. You will see that some of the contracts state one-of-a-kind process or sole source and then name the contractor. There are lots of variables evaluated when awarding a large contract and many of the companies will partner together when submitting their bid. Also, it is not always the low bidder that wins either. It can be political too as some countries want to award (at least part of the project) to a local bidder. Therefore, I monitor the PE's of several of these companies as well as their back log of orders. The business is cyclical and a slowing word economy implies fewer projects (not the case in LNG projects). At this point in the cycle, many of these contractors are selling at historically low PE's (approaching single digit)and trading near multi year lows (but not at 2009 levels). This is signaling a possible slow down in overall business but as of yet I do not see it in either (1) their order book or (2) awarded contract activity. ==================================================================================== Try looking at ABB Ltd Common Stock (NYSE: ABB ) and you tell me if this is a value candidate at current prices? It's a company that has been discussed over the years on this board and I have owned it off and on. Paul mentioned it a few days ago and I have been researching it. Check out Chart 5 of their most recent presentation (April 2011): www02.abb.com Look at some of the recent contracts awarded to ABB for September 2011: theengineer.co.uk I like that they only have 11% exposure in new orders in Europe and most of those are in Germany. So if there is a European blowup they would not get hurt too much. Lots of business in Asia, US and Brazil. I am thinking of starting a position on this one in the $16.00/share area but if things really fall apart it could fall with everything else to single digits. I have owned this one in 2007 (before the crash) and sold in 2008 (during the crash) and still was able to book a positive profit. It's now priced about 35% below what I paid in 2007. It could fall another 35% if it goes back to it's lows of late 2008. Does this one meet your value eye? EKS

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