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A Reconstruction Fund
10/07/2005 12:00 am EST
Gordon Pape and contributing editor Glenn Rogers offer a basket of stocks that are poised to benefit from the post-hurricane rebuilding process. Here are their suggestions for investors to create their own "reconstruction mutual fund."
"My first suggestion is Mexican cement giant CEMEX (CX NYSE), which trades as an ADR. CEMEX is one of the largest global producers of cement. Last year, the company had sales of almost $9 billion. Compared to other companies in this industry, it seems underpriced with a trailing p/e ratio of 15.3. The company pays an annual dividend of $1.20 to yield 2.3%, which is not bad for a stock with capital gains potential. With the post-Katrina/Rita reconstruction and the new transportation bill, there will be a lot of cement poured throughout the USA in the coming years and CEMEX should benefit.
"My next pick is Hughes Supply (HUG NYSE), which distributes just about everything that would be needed to rebuild anything from a building to a municipal water or electrical system. The company has a broad customer base that includes water, plumbing, electrical, and mechanical contractors; public and municipal utilities; and industrial companies. The company had sales of $4.9 billion last year. It pays a dividend that yields a little over 1%. The stock is relatively cheap with a forward p/e of less than 16. With reconstruction ahead, I expect that Hughes business will be brisk for the next 12 months.
"My third suggestion is Global Industries Ltd. (GLBL NASDAQ). The company is in the sweet spot as an offshore construction firm that provides marine construction and support services to oil and gas companies in the Gulf of Mexico. The company installs and repairs platforms for offshore drilling and also offers repair services so they are pretty busy guys right now. But profits have been growing even faster than revenues, which leads me to believe this stock has a way to go on the upside.
"My final idea is Caterpillar (CAT NYSE), the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. In 2004, Caterpillar posted revenue of $30.25 billion and a profit of just over $2 billion. Caterpillar will benefit from not only Katrina/Rita but from the energy and transportation bills. The stock has been moving up, but so have sales, which increased over 32% this past year. Pretty good for an 80-year-old company.
"In addition to their position in helping in the Gulf, these companies should also benefit from the recently passed energy and transportation bills that will pump billions into the infrastructure of the US. You may wish to buy some shares of each of these stocks to create your own reconstruction mutual fund. For an investment of about $10,000, you would have an equally-weighted portfolio that would look something like this: CEMEX (50 shares), Hughes Supply (80 shares), Global Industries ( 200 shares), and Caterpillar (40 shares)."
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