Can These Stocks Bounce Back?
However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares on the rebound, examining one specific sector of the economy in search of companies with rising CAPS ratings.
There are 95 stocks listed under "materials and construction" in the CAPS' screener, of which more than a handful carry well-respected four- and five-star ratings. Those accolades mean our 180,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about the ones below:
CAPS Rating Today
52-Week Price Change
Estimated 5-Yr. Growth Rate
|Foster Wheeler (NAS: FWLT)|
|Shaw Group (NYS: SHAW)|
Source: Motley Fool CAPS
International and financial worries are again gripping the market, and in a weak economy, it isn't surprising to see the CAPS sector of materials and construction stocks faring far worse than the S&P 500, losing 11% in the past year. So let's take a closer look at why investors think some of these other companies won't be jumping from the frying pan into the fire now that the markets are roiled again.
Building profits or falling down?
An engineering and construction firm for the oil and gas industry, Foster Wheeler reported a sharp and surprising earnings miss this past November, falling short of analyst expectations by 25% as fewer and smaller projects were booked. McDermott (NYS: MDR) also suffered from slumping revenue, particularly in the Middle East, where reduced marine activity dropped revenue 34%.
Foster Wheeler still believes global demand for electrical energy will continue to grow, so it has invested in expanding generating capacity at several projects, and coal-fired steam generators will play a significant role. To that end, it just bought a German firm that makes circulating dry ash flue gas scrubbing technology to reduce sulfur dioxide, particulates, heavy metals, and gases produced.
But the heavy construction space has suffered from the uncertainty surrounding global finances, with Foster Wheeler and McDermott both seeing shares drop 43% over the past year. Surprisingly, the steep falloff hasn't hit nuclear facility construction firms as hard -- Shaw Group, Jacobs Engineering (NYS: JEC) , and Fluor (NYS: FLR) have fallen by only half that amount or less.
Considering the outcry against nuclear power in the wake of Japan's earthquake and tsunami, and the destruction of the Fukushima reactor, you'd think they'd have fared worse than those firms catering to the oil and gas industry. But Jacobs is expecting 16% growth in earnings during its 2012 fiscal year, while Fluor sees a 14% earnings jump this year.
As it is, analysts have downgraded their outlook for Foster Wheeler's fourth quarter, reducing their earnings estimates by 10% for the current fiscal year (they've slashed McDermott's by 35%). But the investment community thinks the outlook remains bright, as 97% of CAPS members rating it believe it will outperform the broad indexes.
Projects like the new export facility in Iraq, which should see expanded production capacity when it begins operations next month, will likely keep Foster Wheeler growing, too. Tell us in the comments section below whether it will rebound from its steep slump, then add the stock to your watchlist to be apprised of new developments as they occur.
For Shaw, while getting permission for new nuclear plants won't be easy, it will still be able to benefit from servicing existing facilities, the one segment that actually grew revenues last quarter. While consolidated revenue dropped 1.7%, plant service was up more than 14%.
Almost 91% of the CAPS All-Stars are supportive of Shaw being able to survive the industry setback, but you can keep an eye on its progression by adding it to the Fool's free portfolio tracker. Also, let us know on the Shaw Group CAPS page whether you think it will suffer another meltdown or if emerging economies like China, which have stated their intention to keep relying upon nuclear power, will be enough to power future growth.
The ball's in your court
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At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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