A Mid-Sized Engineering Giant

03/24/2010 1:00 pm EST


Joshua Levine

Editor, ChangeWave Investing and ChangeWave MicroCap Investor

Joshua Levine, editor of ChangeWave Investing, says Jacobs Engineering may be in the best position of all the major engineering and construction firms this year.

Jacobs Engineering (NYSE: JEC) is sized between engineering/construction giant Fluor (NYSE: FLR) and well-known competitor, Foster Wheeler (NYSE: FWLT). But according to the [ChangeWave] Alliance's latest surveys on the water industry and US infrastructure spending, it's Jacobs that is best-positioned for growth this year.

Jacobs has $11 billion-plus in revenue and is all about construction and technical services—including scientific and specialty consulting, engineering and construction, and operations and maintenance. It's also into aerospace, energy, environmental, oil and gas, and much, much more.

Since Jacobs's revenues from infrastructure and water account for less than 20% of its revenues, I looked at its most important market: energy. Jacobs' energy and refining business (currently accounting for more than one-third of revenues) has shown the most consistent growth during the past five years.

It's no surprise, then, that when the price of oil peaked in 2007 and 2008, JEC's shares traded up to almost $100—at a time when many of the investments by the petro industry were for compliance of environmental standards. Then the stock took a big hit as energy prices plummeted and environmental projects neared completion. (It fell as low as $26 in November 2008—Editor.) Today, the stock is still trading more than 50% below its 2008 high.

While Jacobs is a top-quality, project-oriented company that's sensitive to energy prices and macroeconomic trends, our Alliance data on the broader economy is on the bullish end of the spectrum with the type of momentum that will, more than anything else, drive Jacobs' shares this year.

Jacobs also stands to gain from the anticipated burst of US government stimulus spending coming in the next couple of quarters—as hundreds of billions of dollars are unleashed for a broad range of infrastructure, energy, water, and other projects.

In recent weeks, Jacobs has benefited from increased industrial production and economic activity in the United States and globally. [Recently] the company announced a contract from Transport Scotland (Scotland's national transportation agency) and three other contracts:

* $10-million contract from Air Force Research Laboratory's Airbase Technologies Division for [research & development] of technologies for deployed airbase infrastructure, force protection, and homeland defense operations.

* Project management contractor for Marafiq's ongoing investment program in The Kingdom of Saudi Arabia.

* Two-year contract from Canaport LNG for maintenance at terminal in Saint John, New Brunswick, Canada.

In addition to the up tick in capital projects, Jacobs is well equipped for growth in several other areas ranging from services-oriented work to Canadian oil sands projects. Of course, a big kicker for JEC would be stricter carbon legislation, if and when it goes into effect.

I recommend that you begin to accumulate JEC shares below the $44 Buy Under price, and buy aggressively if the stock pulls back below $40. (It closed above $44 Tuesday—Editor.)

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