Top Picks 2017: Chicago Bridge & Iron

01/17/2017 6:00 am EST

Focus: STOCKS

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

My Top Pick for 2017 for growth investors is an engineering company that was founded in 1889 and is headquartered in The Hague, Netherlands, notes J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

Chicago Bridge & Iron (CBI) provides specialty engineering, procurement and construction services to customers in the energy infrastructure markets throughout the world.

The company is increasing market share in the high-growth energy infrastructure business, developing new LNG (liquefied natural gas) and export facilities, expanding existing import terminals and enhancing refining and processing capacity of energy companies.

Chicago Bridge has built a strong backlog of projects that will provide decent sales growth in future years despite low oil prices.

Sales will likely decline 16% in 2016, reflecting the sale of CBI's nuclear construction business. Sales will then be flat in the first half of 2017.

However, solid growth could return before the end of 2017 if President-elect Trump’s infrastructure spending program is enacted. EPS dropped 13% in 2016, but will probably fall less than 5% in 2017.

At only 7.0 times current 12-month $5.05 EPS and with a small dividend yield of 0.8%, CBI shares are clearly undervalued. The company maintains a solid balance sheet.

The stock will likely climb 61% to my minimum sell price target of $56.30 during the next two years. I recommend buying CBI at the current price.

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