Update Jacobs Engineering (JEC) and Fluor (FLR) in the Jubak Picks 50 portfolio
01/02/2012 3:48 pm EST
That switch was designed to help the portfolio through a tough year by substituting an engineering and construction company (Fluor) with a huge 37% of its revenue coming from oil and gas projects for an engineering and construction company with just 26% of its revenue coming from oil and gas projects. My idea at the beginning of the year was that oil and gas industry spending on construction would hold up better than, say, government construction spending, where Jacobs had bigger exposure (22%) than Fluor (15%).
Nice thought, but the switch didn’t work out very well. For 2011 Fluor was down 23.4% while Jacobs was down just 11.5%.
The switch from Jacobs Engineering to Fluor didn’t work last year because I underestimated the depth of the sector pullback on worries about a slowing global economy. Yes, Fluor’s over-exposure to the oil and gas sector would have helped in a moderate downturn in the sector but when the sector got clobbered—especially on worries about growth in emerging markets where Fluor does substantial business—that relative over-exposure didn’t help much and may have actually hurt the stock. Instead Jacobs Engineering got better downside protection from bigger exposure to high-margin technical services (57% of revenue) and its lower exposure to actual construction work. In 2012 I think the positioning of the two companies will actually reverse with Fluor delivering the outperformance that I looked for in 2011. Standard & Poor’s estimates that revenue will grow by 15% at Fluor in 2012 compared to 10% at Jacobs.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Fluor, or Jacobs Engineering as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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