“One company plays a key role in building the infrastructure to make liquid natural gas exports a reality.”

Checking out another teased LNG pick from Macro Trader

By Travis Johnson, Stock Gumshoe, August 7, 2013

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A few intrepid readers noticed that when I sleuthed my way through a Sara Nunnally teaser pitch last week for her Macro Trader newsletter, I didn’t cover all the “secret” stocks she teased — just the two potential LNG exporters who were headliners of that “Cameron Parish Project” tease.

So today we’ll rectify that — and frankly, we rectify it with a company that I think is justifiably much more popular among investors and investing pundits. That enough to pique your interest?

Here’s the pitch:

“The construction of all these new facilities and equipment will simply be enormous.

“One company plays a key role in building the infrastructure to make liquid natural gas exports a reality.

“It builds the terminals, pipelines and storage tanks.

“And the company has been winning contracts for LNG projects left and right…

  • It won an $80 million contract to build LNG storage tanks in Australia.
  • The company was awarded a $180 million contract to build LNG storage tanks on a project in Asia.
  • It received a $110 million contract for a ship loading facility in Texas.

“And that was all in just the past five months!

“Not to mention that it has $25.5 BILLION in backlogged projects, with half of those projects coming from the United States.

“In the next five years, this company is going to do so much building for the natural gas industry you could see its stock rise exponentially as the money pours in.

“Warren Buffett’s company, Berkshire Hathaway, recently bought $404 million worth of this company’s stock.

“And he’s not the only smart billionaire who’s loading up on shares of this explosive company….”

Sounds appealing, no? This is a stock I’ve written about several times and never, unfortunately, bought: Chicago Bridge & Iron (CBI)

CBI is a construction and engineering firm focused mostly on energy infrastructure, with a strong presence in the buildout of LNG infrastructure as well as a solid pipeline of work in nuclear, coal, oil & gas, hydroelectric and other kinds of large energy-related projects (they also do some non-energy construction and engineering work, mostly for public works and federal government projects). They’ve been recommended and teased by several pundits over the last couple years as their backlog of LNG projects and other work turned them into a growth stock, and I muttered and hemmed and hawed about buying the stock last November, around the time they were starting to integrate their acquisition of Shaw and Porter Stansberry was teasing the stock as part of his “the shale gas renaissance will give Obama a third term” attention-getting spiel, and ultimately didn’t bite. Dangit — it was around $30 then, and it’s at about $60 now.

The stock still isn’t expensive by most measures, but it does take dips on occasion because it has gone up so far, so fast and investors have had a tendency to take profits whenever the news seems less than glowing — the stock fell a little bit when they released earnings last week because the order backlog outlook was a little more conservative than most people had hoped. So right now it’s trading at about 12X next year’s expected earnings of a little over $5 per share, or about 14-15X the expected 2013 earnings per share, which is pretty reasonable for a company that analysts expect to grow by 25% per year going forward. That’s a little bit cheaper than their somewhat larger competitors Jacobs Engineering (JEC) and Fluor (FLR), neither of which is as focused specifically on LNG or on energy construction (though FLR does a lot of oil & gas work as well).

CBI does not pay a meaningful dividend, but it does have a small payout. They also carry some debt, though I’d say it’s a manageable amount. Large engineering and construction companies can certainly be very volatile, the timing of large project awards and mistakes on projects (underbidding, problems during construction) can make a big impact on quarterly earnings, and there are substantial risks if major awards don’t go their way (they didn’t get all the awards they were hoping for this year) … but there is the large underlying growth story in the energy business that should help keep the flow of business going. You can see what the company’s saying about the current business environment in their latest conference call transcript here.

And yes, if you’re going to bet on lots more heavy spending for LNG projects over the next five years, CBI is one of the more obvious likely beneficiaries. I’d still be more comfortable with either CBI or the big LNG shipping companies like Golar (GLNG), Teekay (TGP) or GasLog (GLOG), but it’s also quite possible that the shippers have built up their capacity a little bit ahead of the demand so it may well be that CBI is the safer play on LNG expansion. One of my personal weaknesses is that I have a difficult time buying a stock at $50 or $60 that I passed over at $30, so I haven’t jumped on this one to buy it in my account but maybe I’ll talk myself into it eventually. Good company, decent valuation, probably will be volatile and may not grow at the dramatic 25% that analysts are projecting, if for no other reason than that huge LNG and other projects almost always take longer and cost more than expected, but if you’re a LNG believer it’s certainly a good place to start.

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Share Your Thoughts

ShowHide Comments (16)
    1. vivian lewis
      Aug 7 2013, 10:18:58 am

      dear Travis
      many happy returns. would you like a comp to global-investing.com in which we wrote up about 10 months ago a way to buy CBI more cheaply, via a target for its takeover bid, called SHAW?
      That way in was even better than buying CBI directly, and to recommend it, my newsletter which covers foreign stocks only tipped buying SHAW which is American. You know about rule-breaking in newsletters.
      Because all those birthday parties you have coming until you reach my age will be costly. You need stock profits!

      • Sam
        Aug 7 2013, 06:20:53 pm

        The day the news came about the CBI buying SHAW, the SHAW shooted up very next day. Then it did not make any difference. they were running almost parallel. Fortunately, I had some SHAW stocks, so I did well!

    2. Jimmy Smith
      Aug 7 2013, 10:51:58 am

      Happy Birthday Travis. I’m right behind you turning 42 on the 14th. There was a great feeling I had signing up to be an irregular. I very much appreciate all of your works! Keep up the great work!

    3. MJ
      Aug 7 2013, 01:27:29 pm

      Happy belated Bday Travis. #44 huh? Oh to be young and bright again! Sigh! Keep up the good work for us, the little people.

    4. Mark
      Aug 7 2013, 01:36:51 pm

      ♪ ♫ ♪ ♫ Happy Birthday to you ♪ ♫ ♪ ♫ !!!! Thanks for the free part of your letter. You are a great person. I hope you are out to dinner right now!!! I would tell you to go straight to Ted’s Montana grill and get a Bacon, cheese, avacado, Buffallo burger, or ask the think-o-lator. what could be better than that. It might say Outback Steak house, or a Pizza. Ebnjoy your evening. You deliever so much to people like me for free. I have a great deal of respect for you. 20 years ago there was an expression ” Your the bomb” You are!!! It was a positive comment back in the day, I hope you take it like that. Enjoy your Birthday!!!

    5. John
      Aug 7 2013, 02:29:25 pm

      Understandable, the difficulty in pulling the trigger at 60 when you passed at 30. Traded as low as 57.73 today. I know when the news broke about Warren Buffets purchase, the stock ran up to 63/4 so I’m guessing Buffet got in below 60. Thanks for all you do Travis.

      • 3984 |
        Travis Johnson, Stock Gumshoe
        Aug 7 2013, 02:55:47 pm

        Thanks John. And yes, Berkshire owns CBI shares but it’s almost certainly not Warren himself buying them — the new relatively small equity positions at Berkshire have all been chosen by the new investment managers Buffett brought on to help replace his investment acumen in preparation for succession. The new managers have generally been beating the pants off Papa Warren, incidentally, but that’s easier to do with the small portfolios they manage — and they don’t get the call for huge deals like Heinz the way Warren does.

    6. Praveen
      Aug 7 2013, 02:53:00 pm

      Wish you many happy returns of the day Travis! Keep up the good work – the wealth of information you provide is much appreciated!

    7. Carter Beckett
      Aug 18 2013, 07:38:17 pm

      I could have purchased Apple at $45, so you can imagine what it felt like to buy it a month ago at $425. Now that it is $500 I am glad I bought it. Travis, please buy CIB, you will be glad you did.

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