Shaw Group (SGR) is among the infrastructure stocks that are in a position to benefit from the stimulus bill. Shaw Group (SGR) operates in three main markets:

• power plants
• energy
• environment and infrastructure (E&I)

The environment and infrastructure division accounts for about 20% of Shaw's total revenues. The biggest customer for this division is the federal government, Uncle Sam is behind more than 90 percent of Shaw's existing environment and infrastructure backlog. Such projects include transport infrastructure, levee construction and environmental remediation. Each of these types of projects has been mentioned by President Obama in his Stimulus Bill speeches. These are exactly the sort of projects the stimulus bill seeks to fund in coming years. And even with no new orders, Shaw already has USD $5 billion in environment and infrastructure backlog, about a third of its USD $14 billion-plus backlog of incomplete projects.

Shaw's biggest business is power plants, including both conventional fossil fuel plants as well as nuclear reactors. Shaw owns a 20% stake in Westinghouse, one of the two main builders of nuclear plants globally. The company has already won myriad nuclear contracts including a USD $4 billion deal with Progress Energy (PGN).

On the fossil fuel side, Shaw builds natural gas, coal and even geothermal plants. Geothermal power requires no fuel, and is therefore virtually emissions free In addition, and insusceptible to fluctuations in fuel cost. And because a geothermal power station doesn't rely on transient sources of energy, unlike, for example, wind turbines or solar panels, its capacity factor can be quite large; up to 90% in practice. The draw backs of geothermal energy is much of the heat energy is lost, unless there is also a local use for low-temperature heat such as greenhouses, timber mills, and district heating.

Shaw makes scrubbers used to clean pollutants from power plant emissions, and advanced scrubbers will clearly be part of any clean coal initiative.  During the Presidential campaign both the Democrats and Republican camps talked about the importance of clean coal technology and it was also mentioned in President Obama’s speech on Tuesday night to the joint session of Congress.

Shaw Group (SGR) is trading at $20.25 currently and is down over 35% from its recent high of $31.18 on 2/6/09. The November low was $11.47, we are currently trading just below a 50 % Fibonacci retracement level which is at $21.35. I like SGR at this level but would like it even more if it can hold above $19 which is a 61.8% Fibonacci retracement level and then close above $21.50 which is just about a 50% Fibonacci retracement level in the coming days or weeks. If SGR closes below $19 at any point I would reevaluate the entry point.

This is a long term play but I would set $30 as an intermediate term (3-6 months) target. Once at that level I would start to trail an aggressive stop.


Note: I do not own SGR