Target Price Met, Now What?

12/03/2013 11:00 am EST

Focus: ENERGY

Jim Jubak

Founder and Editor, JubakPicks.com

When it comes to one of the most complete providers of design, engineering, construction, fabrication, maintenance, and environmental services, MoneyShow's Jim Jubak, also of Jubak's Picks, thinks your decision to hold or sell depends on your view of the current market.

Chicago Bridge & Iron (CBI), a May 20, 2013 addition to my Jubak's Picks portfolio, has moved above my $74 a share target price. (The shares closed at $76.62 yesterday, December 2.)

On fundamental valuation, I'd now rate this a neutral. On the third quarter results-with its positive surprise of 2 cents a share-I'd say at $76 a share, this stock is fully valued. The company is competing for a couple of big projects that might be awarded in the next month or so-and the US energy boom and cheap US natural gas continue to provide a steady stream of potential new business on chemical and liquefied natural gas projects. Thanks to big fabrication projects in the US and Canada, fabrication sales were up 4.7% in the third quarter from the second quarter of 2012. Estimates on cost savings-from the February 2013 acquisition of the Shaw Group-continue to creep upward to an estimated $50 million in 2014, from as previous estimate of $30 million to $50 million.

But frankly, your decision to hold or sell Chicago Bridge & Iron really depends on your view of the current market.

If you think this rally will stall, go through a minor 3%, or so, pullback, and then resume an upward trajectory in say, early or mid-2014, it's probably worth holding onto these shares. The US energy boom and the worldwide build out in LNG facilities make the engineering and construction sector one of the better bets for revenue and earnings growth in 2014. I calculate earnings growth of around 23% for 2014. On estimated 2014 earnings, I'd project an end of 2014 target price of $91.80 a share. That's a 19.8% gain from yesterday's close.

If, however, you think this rally will end with a significant correction-10% or so (and this market is certainly due)-you will be inclined to sell in the next few weeks and take your profits with a chance for re-entry later.

I'm going to hold this one for a couple of weeks yet, and see what the news flow on Chicago Bridge & Iron looks like, and how this market looks to be trending as we get closer to the middle of the month.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Chicago Bridge & Iron as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund's portfolio here.

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