Sometimes you just need to trust that things will get better over time.
Large-cap industrial company Fluor (FLR) is now cheap enough that upside far outweighs potential risk. The shares went ex-dividend on Thursday. That suggests even stragglers who wanted out but waited around to collect one last 21-cent-per-share dividend have exited their positions.
Last week, the shares carved out a new 8½-year low near $37 before rebounding slightly on Friday to $38.77.
EPS are likely to trough this year as management took a kitchen-sink approach to right-sizing costs for the current weak energy environment.
Fluor proved it had earnings power north of $4 per share from 2012 through 2015. Next year should get FLR started on the road to recovery. Value Line thinks the firm can be earning over $5 per share no later than 2022.
When a similar recovery from depressed profitability took place, from 2010 to 2011, FLR's shares climbed quickly from $41.20 to $75.80. Fluor topped out above $57 during each of the past eight years, including 2017 YTD.
I give kudos to the board of directors for holding the dividend rate steady since the large oil price decline in 2014. At Friday's quote, FLR's current yield is an attractive and well-covered 2.17%. That represents the best yield ever available to FLR stockholders.
Previous "should have sold" moments (red-starred below) only kicked in with Fluor trading about $20 to $40 above its current price.
Until recently, Fluor's technical floor had been solidly established in the $40 to $45 range. I'm betting the sojourn below that line will be history before long.
Analysts at independent research house Morningstar agree. Its quantitatively based evaluation assigns FLR a four-star Buy rating. They see present-day fair value as $58 per share.
Those who like this idea but are short of cash might want to consider selling some FLR Jan. 18, 2019, expiration date puts. Writing $35 or $40 strikes would drop the "if exercised" net prices down to $34.70 or $36.50, respectively.
I can't guarantee that FLR won't go below those breakeven points. I can say for sure that owning Fluor at either of those prices would have been a winning position 100% of the time dating back past the start of 2010.
Maximum profits on these option sales would be keeping 100% of all premium received up front. The worst-case, forced purchase prices are far from scary.
Risk/reward appears very favorable. Own FLR shares, collect reasonable cash dividends and give the stock a chance to recover.
(This commentary originally appeared on Real Money Pro at 7:00 a.m. on Sept. 5. Click here to learn about this dynamic market information service for active traders.)