Heavy Hitters Like These Engineering Plays

 | Aug 15, 2013 | 11:30 AM EDT  | Comments
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Stock quotes in this article:

cbi

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fwlt

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brk.a

,

brk.b

I thought it would be a good time to revisit some of the engineering firms I have not covered for some time. Positives seem to be picking up for two of my favorites in the space as they both reported solid results in the past few weeks. They also have had some heavy hitters up their stakes in their shares recently.

Chicago Bridge & Iron (CBI) is a large engineering and construction firm that I last wrote about in April. It has benefited from the expansion of energy infrastructure needed to service the exploding oil and gas production throughout North America. The stock has moved up slightly since my last article on it, but now seems it poised to take the next leg up.

The company reported earnings in late July that beat expectations on the top and the bottom line. Earnings rose almost 50%, year-over-year, while revenues doubled -- mostly as the result of its acquisition of Shaw Group. Thanks to some major new contract wins, the company's backlog now stands at $24.5 billion.

Revenues are expected to show another strong year in 2014 with consensus expectations calling for an increase in the mid-teens. The stock is not expensive at less than 12x next year's expected earnings given the company's growth prospects.

In addition to its strong results, the company has attracted the attention of some famed investors. Warren Buffett's Berkshire Hathaway (BRK.A, BRK.B) just disclosed it added some three million more shares to their initial 6.5 million stake they revealed in May. In addition, David Tepper's Appaloosa Management also revealed a new stake in CBI, both via common stock and options.

Foster Wheeler (FWLT) is a large engineering and construction contractor as well as a supplier of power-generating equipment worldwide. David Tepper also likes this infrastructure stock, recently disclosing his fund upped its stake in the shares. Lazard upgraded FWLT to Buy in late July stating that the second quarter marks the bottom of the company's earnings cycle.

Not that the company's second-quarter results were bad. The company easily beat on the bottom line and came in just a bit light on revenues. However, it did get a nice bump and the stock moved above its 200-day moving average from the improved forward guidance management issued along with results. Revenues are expected to accelerate in 2014. After posting low single-digit growth this fiscal year, analysts expect sales increases in the low teens for 2014. The shares are selling for about 12.5x next year's expected earnings.

The company has increased its exposure to China recently by purchasing a 49% stake in the Chinese Design Institute. It also purchased NorthAm Engineering, one of Mexico's biggest engineering and construction firms. This increases its penetration into Latin America and should allow the company to benefit from Mexico's efforts to liberalize their domestic energy industry.

Yesterday on Real Money, Jim Cramer talked about some of the impacts of the natural gas revolution and the likely impact on the commercial trucking market. These two companies are well positioned to benefit from heavy investment needed on the infrastructure side of that revolution. This unfolding transformation should provide a significant tailwind for both firms' prospects for the foreseeable future. Maybe that is why some heavy hitters are becoming so attracted to their stocks.

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