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.