"Infrastructure stocks have been laid low by the economic downturn; but once massive government stimulus programs get growth going again, these companies should be among the surest winners," says Stephen Leeb.
In The Complete Investor, he explains, "We've found four top infrastructure stocks, now at bargain-basement levels, that we think will surge. All are all astonishingly cheap when you consider how vital their role is in worldwide economic growth."
"It would be difficult to find a group of stocks more leveraged to economic growth yet whose valuations imply there will be no growth.
"If you have any faith in the world’s future, these stocks are for you, and we think they will be dramatic outperformers as stimulus spending starts to kick in.
"Most diverse among the four is Jacobs Engineering (NYSE: JEC), which serves the chemical, pharmaceutical, building/infrastructure, and oil and gas industries. Nearly 20% of its revenues come from government sources, domestic and foreign.
"The company has nominal debt and has been generating hefty free cash flow, which management has indicated it may use to acquire beaten-down compatible firms, adding to future growth.
"The stock trades at a historically low nominal and relative multiple, which when combined with long-term growth in excess of 15% points to exceptional returns over the next five years.
"Fluor (NYSE: FLR) is the largest and by many measures best in class of our four. Though less diversified than Jacobs, no company is better positioned to take on large, expensive, complex projects.
"As a result, even though the bulk of its business comes from the energy sector, cancellations have been few. That’s because the larger the project, the higher the ultimate costs of delaying it.
"Fluor also gets much of its revenues from government spending and from project services, where growth is likely. In fact, Fluor should be a core holding in any portfolio looking for a stake in infrastructure spending.
"Layne Christensen (NASDAQ: LAYN), a smaller company, has a leading position in water and mining infrastructure plus a stake in energy.
"Water infrastructure is one of the country’s most vital needs and will almost surely be part of the upcoming stimulus package.
"Like the other infrastructure ideas, Layne has abundant cash flow, which it is using to buy up compatible companies that are much cheaper than their forward fundamentals suggest. This is one of the best small companies in the infrastructure space.
"Finally, KBR (NYSE: KBR), a one-time division of Halliburton, is being unduly penalized for legacy issues (lawsuits, etc.) likely to cost the company no more than $0.10 to $0.30 in earnings over the next few years.
"The stock has declined to a ridiculously low level in which its short-term assets net of debt amount to about 60% of the stock’s value.
"Given that the company’s most important division is defense contracting and services, this worldwide franchise should have no trouble generating earnings growth of well over 10 % in the next five years.
"The company is also expert in liquefied natural gas (LNG), a promising alternative to oil. Longer term, LNG offers exceptional potential throughout the globe. Once new management convinces investors that its legacy problems are behind it, the stock should soar."
