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Good investing is boring.
That's a favorite aphorism of billionaire investing icon George Soros.
And it's a favorite of mine.
I thought about this "Soros-ism" the other day – during a conversation with Christopher Skokna, a new associate editor who just joined me here at Money Map Press.
With Fathers' Day approaching, we were talking about dads … our dads. You've heard me talk about mine many times here. Christopher's dad spent his career as a chemical engineer who designed storage tanks.
Christopher's dad's work still stands – in Lake Charles, La., at New Jersey's Meadowlands, and at the Port of Baltimore.
I'll grant you, when you first hear about the story, it sounds like boring work.
But I was instantly intrigued – for a couple of reasons.
First, I know that "boring" is often best. And, true enough, Christopher said his dad, Doug, retired a wealthy man – and at a pretty young 55 years of age.
Second, I just happened to be looking at an investment that is related to what Doug did for a living.
And that's precisely why we believe this stock could be a big, big winner.
A Global Survey
I invoked the Soros name here for a good reason: George Soros knows how to make money.
He and partner Jim Rogers achieved legendary Wall Street status with The Quantum Fund, a hedge fund that's often described as the first real global investment fund. The duo launched Quantum in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor's 500 Index climbed about 50%.
To me, that's proof that boring investments can be profitable.
And when it comes to investments, nothing is as boring to talk about as "infrastructure" – a clunky bit of jargon that refers to such civil-engineering mainstays as pipelines, bridges, roads, reservoirs, ports, and, yes, storage tanks.
The term is a yawner, but there's money behind it. While state and federal nondefense infrastructure spending has plummeted since 2008, it's still running at a rate of about $225 billion a year.
That's a hefty pot of money – and now that the economy is on a firmer footing, experts are forecasting an increase.
What makes this even more intriguing is that that's just public infrastructure spending in the United States.
We're also seeing big upticks in infrastructure spending in markets such as Europe and China.
And, back here in the U.S. market, there's also a big surge in private-sector infrastructure outlays – especially in the energy sector.
A big part of private and foreign infrastructure spending is going toward the design, engineering and construction of facilities for the liquefied natural gas (LNG) industry, both domestically and overseas. This fuel, which is used mostly to generate electric power and heat, is becoming more and more popular because it's cost effective, clean, safe and flexible for trade.
And here at home, according to BP's Energy Outlook 2035, which was published in January, the United States will double its production of shale gas by 2035, becoming the world's largest natural gas producer.
Resident energy expert Kent Moors has been telling us about the U.S. "LNG Revolution" for some time now – and says it will lead to a new "energy independence" for America. And Real Asset Returns Editor Peter Krauth – our in-house natural-resources expert – recommended Cheniere Energy Inc. (NYSE:LNG) in a special report last July 10: The stock has soared 129% since then, one of two dozen stocks that have doubled or better after we've recommended them to you in Private Briefing.
The LNG boom is clearly going to be big.
In anticipation of a needed federal approval, companies are rushing to open LNG export facilities in the United States. Currently, more than 20 energy companies are awaiting federal approval on the construction of LNG exporting facilities.
Once federal and state regulators approve those facilities, someone will need to design, engineer and build them.
If you're looking to enter this burgeoning market, but don't like messing with energy stocks, which can be volatile, then "boring" infrastructure stocks can offer a great alternative.
Imagine a construction-and-engineering firm with a nice business backlog of infrastructure projects – both public and private. We're talking about roads and bridges as well as pipelines and storage tanks.
And picture what would happen if you gave that business a "booster shot" of new work stemming from the LNG revolution.
It's still a basic infrastructure play.
But it's suddenly a lot less boring.
We've found such a company: Chicago Bridge & Iron Co. NV (NYSE: CBI). And we believe the time to move on this stock is now.
Here's why …
A History of Success
Founded in 1895 in Chicago, CBI got its start as a designer and builder of bridges and bulk liquid storage tanks. The company has a veteran leadership team whose members know what they are doing.
One thing that I like is that – despite being in a rather staid industry – these guys are aggressive in the pursuit of new business: Instead of waiting for business to come to them, they aggressively pursue new customers and new business.
And as we'll see in a minute, the company even makes strategic acquisitions when necessary.
This has been a very successful formula: CB&I has grown profits at a 16% annual clip since 2000. And on April 23, it reported a backlog of $30.7 billion – nearly three times its 2013 revenue of $11.1 billion.
In the energy sector alone, Chicago Bridge & Iron does engineering, procurement and construction (EPC) work in the oil and gas and power markets.
Then, there's design and construction of all sorts of infrastructure for government and private clients. There's environmental protection and remediation. And there's EPC work in water and wastewater, and metals and mining.
For instance, CB&I last December won a $1 billion EPC contract to design and build an ethane cracker for Occidental Petroleum Corp. (NYSE: OXY) and in Ingleside, Texas. (Occidental is another Private Briefing recommendation – a "spin-off" stock we told you about in mid-February.)
Plus, the Netherlands-based CB&I, which does most of its business out of The Woodlands, near Houston, is diversified internally as well. Sixty-one percent of the company's revenue comes from engineering, construction and maintenance; 23% from fabrication; and 5% from technology. And that technology component – while just a small part of revenue – is a powerhouse on the balance sheet, providing 20% of operating income.
I have to highlight the firm's work in domestic public infrastructure (including such "boring-but-necessary" projects as roads, bridges and ports) and power-generation (especially nuclear).
These are both good businesses.
In a good economy, governments enjoy a windfall in tax receipts and are usually game to play "catch-up" with transportation projects. Even in a malaise, however, basic road and bridge maintenance must be continued.
Energy, too, is benefitting from windfall spending. Power companies are shifting away from coal, which is giving natural-gas projects a bit of muscle. And even with the negative perceptions of nuclear power in the post-Fukushima era, the reality is that we're seeing big outlays for nuclear powerplant construction in China.
(In fact, as we told you in late April, China is looking at infrastructure spending as a way to energize its flagging economy. The influential China Daily newspaper has reported that Beijing intends to speed up approvals for nuclear power plants this year, and now plans to begin work on plans with an aggregate capacity of 800 gigawatts – up from 221 gigawatts. Beijing will also speed up construction of five new railway lines. And it plans to start work on ultra-high-voltage power lines designed to carry electricity generated in the sparsely populated west to the east where it's badly needed, the newspaper reported.)
This is all good stuff.
And we haven't even talked about Chicago Bridge's LNG efforts.
You Say You Want a Revolution
As we noted above, the LNG boom is fueling a revolution in America's global energy position. Transforming the United States into a net-energy exporter is nothing short of an economic miracle. And the "trickle-down" impact will be massive.
According to a recent report from ICF International, the economies of LNG-producing U.S. states could reap from $10 billion to $31 billion each – once exports begin.
And the "sharpies" inside the Beltway want to make sure the United States gets its share. Republican members of the House of Representatives just began calling on the United States to export more LNG so that Europe doesn't have to depend so heavily on Russia for its energy needs.
For all of this to happen, of course, some problems have to be solved.
For instance, LNG is difficult to store and transport. That means special pipelines, storage facilities and trans-shipment terminals will have to be built. The same with ships: Special vessels will be needed to transport LNG to overseas markets.
In short, for the vision of "energy-independent" America to take shape, companies and government agencies at the federal, state and local level will, combined, have to invest billions of dollars – in boring infrastructure projects.
And Chicago Bridge & Iron is one of the companies best positioned to capitalize on these outlays.
The company has already designed, engineered and constructed LNG facilities all over the planet and continues to do so. And it has already made tens of billions of dollars from this work.
In just the past few years, for example, CB&I designed and built Europe's largest LNG terminal – the South Hook LNG operation in Wales – and South America's first LNG plant, Peru LNG.
Despite what we've shown you here today, investors continue to dismiss Chicago Bridge & Iron in favor of slightly faster growing construction and engineering (C&E) firms – or to overlook the sector altogether.
We've already illustrated why it's a mistake to ignore the C&E and LNG opportunities.
Now we're going to show you why CB&I is a stock that you want to own.
What Wall Street Can't See
Due to a somewhat shaky first quarter, Chicago Bridge missed some revenue and earnings-per-share (EPS) estimates. In response, some of the "hair-trigger" crowd in New York decided to downgrade the stock all the way to "Sell."
Frankly, I'm glad those folks made this miscue – it gives you a shot at the stock at a cheaper price.
We've talked about all the business opportunities emerging in the C&E marketplace. And we also told you that Chicago Bridge has a management team that's prudent – but still aggressive.
To make sure the company could keep growing – and to add to its capabilities – CB&I early last year spent $3 billion so snap up the Shaw Group Inc. The purchase included the hefty Charlotte, N.C.-based Shaw Power Group, and basically doubled the size of Chicago Bridge & Iron.
"With the close of the transaction, CB&I is the most complete energy infrastructure focused company in the world," Chicago Bridge CEO Phillip Asherman said at the time. "Through our now 50,000 talented employees, we have the capabilities and the expertise to provide our clients with a world of solutions, and a tremendous strategic advantage in responding to the growing demand for energy infrastructure around the globe."
Asherman wasn't just blowing smoke. For the first quarter alone, CB&I saw its engineering, construction and maintenance revenue come in at $4.9 billion – a year-over-year increase of 393%.
Team Asherman is looking to improve Chicago Bridge on other fronts, too. For instance, he wants to make the company more shareholder-friendly – a shift that almost always increases my interest in a stock.
Take dividends – not a strong suit for this stock.
In fact, it's downright lousy.
The yield on the stock is less than half a percent. And the "payout ratio" – the percent of profits paid out to shareholders as dividends – is an anemic 6%.
Asherman has said – on the record – that he recognizes the problem, and intends to fix it.
"We're going to look for opportunities to return [value] to the shareholders if we have an opportunity as we go through this year in terms of repurchasing [shares] or [boosting] dividends," he said recently. "I know the yield is a little out of whack, so we're going to try to fix that."
One of our favorite adages here at Private Briefing is to "follow the (smart) money." I always counsel folks to watch for buying by insiders … or by "knowledgeable outsiders" – such as a George Soros or Warren Buffett.
And Buffett happens to be a player with Chicago Bridge. His Berkshire Hathaway Inc. (NYSE: BRK.A/BRK.B) investment vehicle early last year picked up a stake in CB&I and now controls 8.9% of the business.
The original position was purchased the first quarter of last year at prices ranging from $46 to $62 a share. CB&I's current price of $81 means Buffett has a nice profit on his hands.
But here's what I think is even more significant. If you look at Berkshire's most recent filings, Buffett didn't sell the stock. When the infrastructure firm appeared to "stumble" a bit earlier this year – and the Wall Street crowd issued the downgrades and "Sell" recommendations – Berkshire didn't flinch.
The message: Team Buffett sees higher prices ahead.
And so do we.
Both sales and profits continue to grow. CB&I has seen its profits grow at a 17% annual clip over the past five years; net income jumped from $301.66 million in 2012 to $454.1 million last year.
Thanks to the Shaw Group deal, revenue more than doubled during that same stretch – rocketing from $5.49 billion in 2012 to $11.09 billion last year.
New contracts signed during the quarter totaled $5.7 billion, an increase of 198% on a year-over-year basis, meaning there's new business coming in, too.
The LNG boom should keep that surge going. And an increase in attention to shareholders will bring more investors into the fold.
All of this points to a higher stock price going forward.
I think some investors are starting to catch on. Wall Street's current target price on the stock is $95 – about 17% higher than the current price of $81. Estimates run as high as $100 a share – which would represent a 23.5% profit from current levels.
Those are certainly some pretty nice returns from an already-pumped-up market.
And with profit numbers like that, you can start to see how my new colleague's dad was able to work in this sector -and retire in comfort at such a young age.
We'd like to see the same happen to you …
As it turns out, this stock isn't so boring after all.
But that doesn't change the fact that we still believe it can be a great investment.
See you tomorrow.
[Editor's Note: Unless otherwise directed, we recommend investors employ a 25% "trailing stop" on all holdings.]
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- Private Briefing: What Our Experts Predict For the Year's Second Half.
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- Private Briefing: China's "Going Nuclear" – But We're Not Scared.