Chicago Bridge & Iron (CBI)
By Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 3/19/13 Sign up for Cabot Wealth Advisory e-newsletter
My stock idea today is one of the liquid leaders, but it’s one that few investors are aware of. It’s Chicago Bridge & Iron (CBI), a leading engineering and construction firm for major projects worldwide. I’m not talking about commercial real estate or anything like that; CBI designs and builds things like liquefied natural gas facilities, steel plate structures and petrochemical structures.
Normally, this is a solid business with some ups and downs along the way. But, for whatever reason, Chicago Bridge & Iron is firing on all cylinders now, bringing in a ton of new orders (lots in the energy and chemical fields), and most important, its recent acquisition of peer Shaw Group could be transformational.
In the most recent quarter, it beat estimates on both sales (up 22%) and earnings (up 30%), and it exited the year with an $11 billion order backlog, thanks to a whopping $7.3 billion of new deals won last year (including $2.8 billion in the fourth quarter alone!). For comparison, the company brought in $5.5 billion in revenue last year.
All of this could be just the tip of the iceberg; once Shaw is completely integrated, the company’s backlog should be north of $20 billion, and that should include a well-diversified mix of projects by geography, industry and contract type.
That’s one reason earnings estimates have moved up sharply; analysts see the company earning about $4 per share this year, up 30% from last year, whereas their expectations were for just $3.50 a couple of weeks ago. In 2014, the bottom line should rise another 20%, which isn’t bad for a stock trading at just 19 times trailing earnings.
What really impresses me about CBI is its chart—it remains in a firm uptrend, having kited higher with hardly any weakness since mid-November, hitting new all-time highs after a multi-month consolidation. It did pull back normally during the market’s February weakness, but it quickly regained all of its lost ground and more, hitting new highs last week. It barely hiccupped from the Cyprus news over the weekend.
I mentioned CBI in a Cabot Wealth Advisory a few weeks ago, and with the overall market looking fine, I think you should sit tight if you own some. But if you don’t, try to get in on a dip toward 55 with a stop near 50.
To learn more about other leading stocks that have a potential to become big winners, click here.
From Cabot Wealth Advisory 2/4/13 Sign up for free Cabot Wealth Advisory e-newsletter
A good example of "overbought" stuff can be seen in many cyclical stocks. On a short-term chart, many of these names have had nosebleed run-ups during the past few weeks; they're miles above support, and usually 10% to 15% above their 50-day moving averages (sometimes more!). Again, that has many investors booking profits before they're taken away.
But on a longer-term chart, I'm seeing tons of stocks and sectors emerge from 12- to 24-month basing efforts. Thus, when looking at the major trend, this looks more like a kick-off than a blow-off. That's not saying I'd be buying these stocks here, but the point is to keep your optimist's hat on and look for prudent entry points.A good example of this comes from Chicago Bridge & Iron (CBI), a construction firm that does big business in the oil and gas, chemical and, more recently, the liquid natural gas industries. Here's what I said on January 14 when I wrote about the company in Cabot Top Ten Trader:
"The oil and gas industry has been kind to construction services and infrastructure firm Chicago Bridge & Iron. The company is currently building a $2.3 billion liquefied natural gas (LNG) plant in Western Australia, a set of $500 million LNG storage tanks in the same area, and a $60 million LNG tank complex in Saudi Arabia. Chicago was also recently awarded a $250 million design services contract by Daewoo Ship Building & Marine Engineering. However, the real headline grabber recently has been Chicago's acquisition of fellow energy infrastructure firm Shaw Group. The $3 billion deal is moving forward after holders of 83% of Shaw's outstanding shares backed the acquisition, ending a long period of analyst speculation and concern that the deal could face resistance.
"Outside of oil and LNG, Chicago Bridge & Iron provides development and construction expertise for the water, nuclear and metals production segments as well, with this business unit accounting for half of company income. Management recently raised its revenue guidance to $6.3 to $6.7 billion for 2012, ending December 31, projecting that earnings per share will arrive in a range of $3.35 to $3.65 per share. The new figures far exceeded the consensus estimates for $5.4 billion in revenue and $2.98 per share in earnings, and could attract a wealth of new investors."
As for the stock, it has ripped ahead in a straight line from 36.5 in mid-November to north of 51 today. It stands about 14% above its 50-day line and has risen nine of the past 10 weeks. Overbought!
However, when you take a step back, you see that CBI topped at 42 in March 2011, and didn't permanently get through that level until December of last year--effectively 21 months of consolidation. Thus, on a longer-term basis, it looks like CBI might just be getting going.
I still don't advise chasing the stock up here, especially with earnings due out in a couple of weeks. But my guess is that CBI's first pullback to its 50-day line (now around 45) is buyable; you could consider a small position (say, half of what you'd normally buy, dollar-wise) on a dip of a couple of points, with the idea of either cutting the loss at 45 if things go awry ... or, more likely, adding shares should CBI push ahead after its quarterly report.
|Chicago Bridge & Iron Company N.V. (CBI)
The Hague, 2596JJ Netherlands
31 70 373 2010
|Index Membership: N/A
Sector: Industrial Goods
Industry: General Contractors
Full Time Employees: 18,200
2/4/13 Chicago Bridge & Iron (CBI): Is the stock overbought?