By and large it’s been a long time since the construction stocks have made much money for themselves, much less for investors. But that may be about to change, suggests Joe Duarte, editor of In the Money Options.
Even if there is little glitter involved, there is something to be said for good old fashioned cyclical companies, or what I often call “two yards and a cloud of dust stocks.”
Therefore I am recommending the purchase of shares in MasTec Inc. (MTZ) a leading commercial infrastructure construction firm with a wide portfolio including telecom, oil and gas, electric transmission, power generation and general industrial projects.
I’ve been watching MasTec for months as it formed a huge base between $35 and $45. But the most bullish development was the breakout just as the Trump tax cut passed muster.
The breakout suggests Wall Street no longer doubts the high likelihood for large sums of federal money into the construction industry.
Further, the breakout on the news of the tax cut suggests robot algorithms were involved in bidding up the price of the shares. And recent history suggests robots stick with their trades as long as the headlines support their point of view.
Meanwhile, MTZ is still inexpensive compared to the market and some of its cyclical stable mates. For example, while U.S. Steel (X) has a P/E ratio of over 50, MasTec is still trading around 16 times its recent earnings while sporting a 21 percent return on equity, a sign of management’s ability to run the company.
It is important to note that cyclical companies, including MTZ, are volatile by nature. That’s because many of them are thinly traded and any news may exaggerate a move up or down.
Therefore it helps to be patient and to pay attention to price support levels and the overall trend, rather than to focus on day to day price changes.
Still, for patient investors who can weather a bit of price volatility MTZ may be a very pleasant surprise, at least for the next few weeks and perhaps into the first quarter of 2018 and beyond.
