Chicago Bridge: Stellar Outlook

08/22/2014 7:00 am EST

Focus: STOCKS

Stephen Leeb

Founder and Research Chairman, Leeb Group

A temporary drop in a long-term, energy-leveraged winner is creating a buying opportunity not to be missed, suggests Stephen Leeb, editor of The Complete Investor.

Chicago Bridge & Iron (CBI) is at the forefront of energy infrastructure projects everywhere, ranging from building storage tanks to retrofitting refineries—to nuclear plants and LNG terminals. Its customers include virtually every major oil company in the world.

This is a classic case of investors losing track of a lush forest because they are focused on a few soon-to-be-eradicated weeds. This is a big buying opportunity for a company whose long-term prospects remain outstanding.

In early June, analysts blasted the company for having overvalued its acquisition of Shaw, a major purchase completed in 2013. It's true that some of Shaw's work was costlier than CBI had initially thought to be the case.

But these are simply weeds that will soon be cleaned up. They won't lead to a major write-down and in no way diminish the company's role as a major provider of energy infrastructure in the US and globally—or its growth prospects, which remain stellar.

As a result, the stock's drop has created one of the best values you'll find in the energy space. Under any valuation metric you can name, the company is dirt cheap.

The PEG ratio is well under 1, while free cash flow yield is among the highest for both the industry and the market as a whole.

While expected 2014 earnings of about $5 a share will likely include a portion of non-cash profits, 2015 profits won't be sullied and should be around $6 a share. Profits should continue to advance at a double-digit rate well into the decade or beyond.

While the shares could remain volatile a while longer, over the long-term, Chicago Bridge & Iron should prove one of the most rewarding investments in the energy space.

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