Post-Hurricane Play

12/23/2005 12:00 am EST

Focus:

Dennis Slothower

Chairman and CIO, Alpine Capital Management

Each month, Dennis Slothower, editor of Stealth Stock, selects one favorite stock as his "Stock of the Month." His latest, Shaw Group, is involved with FEMA and the USA Army Corps of Engineers in the rebuilding efforts after Hurricane Katrina.

"This has been an exceptionally difficult year, primarily because the trend hasn’t been able to sustain itself beyond just a few weeks in either direction, making it a whipsaw nightmare, but I do believe this is about to change. I will be concentrating on the growth sectors of the economy. Small-cap growth stocks have a lot of potential in 2006. I have also been impressed with the way the financial sectors have sprung back, which illustrates the market’s belief that the Fed is nearing the end of the rate cycle. All in all, 2006 should be a very good year.

"Shaw Group (SGR NYSE), a leading supplier of industrial piping systems, is our latest ‘stock of the month’. The company has expanded its fabrication and bending capacity as well as its piping system products and services. Through acquisitions, its project scope now includes engineering, pipe erection, construction, and maintenance services. The company serves the energy, environmental and infrastructure, and chemicals markets.

"In September, SGR received a contract valued at $680 million from Cleco Power LLC, which plans to build a new power plant near Boyce, Louisiana, with completion scheduled by mid-2009. Separately, SGR received a $100 million, one-year contract (with a one-year option) from the US Army Corps of Engineers for recovery and rebuilding efforts related to Hurricane Katrina, including design, construction management, and repairing and restarting existing pump stations to remove floodwater. Separately, it was awarded a $100 million contract by the FEMA to provide support services and housing assistance.

"SGR has greatly reduced its debt during the third quarter, selling $260 million worth of stock and using the proceeds to pay down over $210 million in debt. They also recently announced two huge projects in addition to their current contract with FEMA to assist in the rebuilding process in areas hit by Hurricane Katrina. All this should boost earnings in 2006.  This is a stock that should be selling in the high $40s to low $50s over the next three to five years."

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