Energy and Construction Stocks Looking Good -- For Now
While there are solid prospects for stocks of engineering and construction firms in 2011, they won't come from efforts to rebuild a devastated Japan.
The primary drivers will be high oil prices, general economic revival and U.S. government spending programs.
"If contractors from
Investors in these companies' stocks must keep fundamentals in mind:
Oil prices are important because international and national oil companies are the top customers for engineering and construction services. The awarding of contracts is what counts, and there has been an increase in agreements the past three quarters.
"These firms will benefit from a good capital expenditure story for the next few years," said
Contracts inked before recession kept these companies out of harm's way when much of the world was mired in recession.
"When the economy went into its trough in 2008, the engineering and construction companies had already booked a backlog of projects, so they didn't take a big hit in 2009 and 2010," explained
For the past two years of rocky economy, companies have had to compete for projects and reduce their expenses, Tang-Varner noted. Profit margins should be compressed for at least a couple more quarters, she expects.
Experts believe 2012 and 2013 will bring large awards and profits for engineering and construction firms, an expectation that is fueling their stocks. Higher profits for oil companies mean more spending on major projects to produce more oil. The greatest demand is in the
"The big focus isn't on the ExxonMobils of the world, but rather the big national oil companies such as
There are investments worth making in the industry.
"Fluor has the ability to participate in many geographies and different energy end markets, whether refining petrochemicals or upstream production," said Gabrielski, adding that a drop in oil prices would be negative for the industry.
"I like the stock of both Fluor and Jacobs because they are good at executing projects and have a solid operational history," said Connors.
Here are some other companies whose stock is worth watching:
Remember that political upheaval, decisions in energy generation and unforeseen events can affect these stocks.
"Before the events in Japan, I'd have told you the companies with nuclear power exposure would have done better," concluded Tang-Varner. "But
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