Set-up Emerging in Oil Services Leader

10/25/2011 7:00 am EST


Strong profitability and close proximity to the 50-day moving average are among the tailwinds for oil services company Foster Wheeler (FWLT), which could soon provide a favorable long entry for traders.

Foster Wheeler AG (FWLT) provides construction and engineering services to oil and gas, oil refining, chemical/petrochemical, pharmaceutical, environmental, power generation, and power plant operation and maintenance industries worldwide.

The company’s Global Engineering and Construction Group designs, engineers, and constructs onshore and offshore upstream oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, gas-to-liquids facilities, power generation and distribution facilities, and gasification facilities and processing facilities associated with the metals and mining sector, as well as oil refining, chemical and petrochemical, and pharmaceutical and biotechnology facilities.

Recently, the company has put up some good numbers. In its most recent quarter, Foster Wheeler saw sales rise 18% with wider margins and stronger income than expected. The bright spot for the company was in its global power segment, which overcame downward pressure from a slowdown in its engineering and construction division.

What comes next for Foster Wheeler depends on global macroeconomic conditions. If the recovery can sustain itself despite lousy economic reports in the US, then the company could push further toward perfection.

This sector includes names like Jacobs Engineering (JEC), Fluor (FLR), and Shaw Group (SHAW). This tape has been improving over the last couple of days due to some better headlines out of Europe. We all have an opinion on how the European drama will resolve itself, but if this area of the world can find some closure, it would certainly remove the wet blanket that has been stifling this market.

Technical View

The stock has had a decent move off the bottom that was put in back on October 4. About a week ago, the stock traded up to its 50-day simple moving average.

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FWLT is currently trading around $20.80 and that moving average number is around $21.26. I would prefer to be a buyer of this name on a close above that 50-day moving average accompanied by good volume. That would better validate things for me. My target is $23-$25, and earnings are scheduled to be reported on November 2.

By Joe Donohue of Upside Trader

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