When I emphasized the need to own infrastructure stocks on October 23, 2007 (“Subprime” NOT the headline from Honeywell’s quarter - Part 2: Strength in Energy, Construction, and Infrastructure), I made a mistake. I apologize to my portfolio’s performance, and to my readers, for recommending Flour Corp. (FLR) and Foster Wheeler(FWLT). Not that Flour Corp. and Foster Wheeler (I bought FWLT on my own recommendation) aren’t great investments, it’s just that McDermott is a completely different beast all together. Foster Wheeler is still my number one Engineering and Construction (E&C) pick, make no mistake (Foster analysis in another piece soon). Wait, isn’t McDermott an E&C company you ask?

The McDermott Secret

After much research, I believe McDermott is actually a Oil Service and E&C hybrid. I Read the rest of this entry »

Short piece out on Reuters this morning (”Siemens to regroup international operations“) citing a German daily newspaper that Siemens is in the process of restructuring its international operations into 20 regional centers:

The trains-to-lightbulbs conglomerate, which is active in more than 190 countries, is in the midst of its biggest restructuring in nearly two decades.

Loescher has set himself the task of slashing needless bureaucracy and slimming down the company to catch up with more profitable rivals such as General Electric

ABB, my favorite power grid and automation infrastructure stock, got taken down by Seimens’ unexpected profit warning on March 17th. Siemens warned that it’ll miss current quarter earnings by $1.4 Billion after having given a positive outlook in January. The warning caused a 17% slashing of Siemens’ stock (which was warranted) but ABB caught a ricochet piece of shrapnel and traded down to $23.73 at one point on March 17th, some 9% below the $26 area where it closed the day before. But ABB has already bounced back like a champ, touching $25.4 on Tuesday’s trading.

Whoever was dumping ABB shares obviously do not understand that Siemens’ problems benefits ABB. Read the rest of this entry »

Commodities across the board- hard, soft, and tender- have all been obliterated in just a day and a half as rumors go around that hedge funds who were leveraged up trading commodities have to unwind that leverage, causing a run on commodity profits like a run on Bear Stearns last week. Others are pointing to the strong (i.e. less weak) dollar makes commodities less attractive as a place to hide from the falling dollar. Under all this volatility is the fundamentals, and here’s what the fundamentals are saying (from the Reuters piece “Rio says “takes notice” of iron pellet price hike“):

Brazil’s Vale said on Wednesday it secured an 86.67 percent increase in pellet prices for 2008 from Italian steelmaker Ilva. This compares with a 65-71 percent hike negotiated recently for its non-pelletized iron ore.

“We believe most investors expected pellet price increases to be equal to or less than the 65-71 percent increase on iron ore fines announced in February, and this news could come as a surprise to the market,” Morgan Stanley said in a client note.

If the end demand in steel products using these iron pellets weren’t strong, steel producers would not be willing to agree to a 86.67% price hike.  If things were bad, a price hike like that would squeeze a producer out of business.  Again, I feel like this would put pressure on the steel producers, but this is bullish for industrial commodity prices.

**Disclaimer: Author owns CVRD (RIO) as of this post** 

Finding my comfort zone. Restructuring the portfolio to suit my strong point. Not trying to run a diversified portfolio. I’m not running this for retirement. Its a specialized fund in science, engineering, and technology. Most picks here are for the long term, looking at supercycles of 7-14 years that will dwarf the credit crisis we have now, which is already making Paul Bunyan look like a baby (much much bigger, and hairier).

1. Union Pacific (UNP) - Weak dollar. Lets keep exporting stuff! Maybe some lead back to China? Just kidding. How about just some POT(ash).
2. Potash Corp. of Saskatchewan, Inc. (POT) - If you saw how excited the CEO was on Fast Money talking about the potential growth, you’d think he was smoking some. Perfect explanation of the growth: once people taste meat, they don’t go back. Meat requires several times more grains to produce. Show me the POT baby.
3. Companhia Vale do Rio Doce (RIO) - Steel producers being able to raise prices?  I think the real beneficiary here is Companhia Vale do Rio Doce (aka CVRD).  CVRD is the hand that’s squeezing the toothpaste of steel producers’ margins.  I don’t think steel producers want to raise prices.  Commodity prices are forcing them to.  They’re just passing on CVRD’s price hikes, not really expanding margins and making more mula.
4. Southern Copper Corp. (PCU) - Even though we don’t notice it, civilization is built on copper.  And man oh man are we building.
5. Precision Castparts Corp. (PCP) - Riding the commercial airplane replacement and buildout cycle. Also, essential for the furnaces going into the power plants popping up in China every 2 weeks.
6. ABB Ltd. (ABB) - Perfect play on the power grid (along with PCU and PCP), both the decaying ones in the U.S. and the new grids to be build in China, India, Russia, Europe, Mid East, and Latin America. A growth-value. Hard to say that about many stocks. A lot of advanced energy-generation and energy-conservation technologies no one talks about.
7. Foster Wheeler, Ltd. (FWLT) - No MDR, but should approach MDR’s perfection with the opportunities in the Middle East and especially in Asia. The new products they’re pushing including the CFB and Pluto platforms should help margins & efficiency explode.
8. McDermott International Inc. (MDR) - 4000% over 5 years, and still trading at the lower end of it’s P/E range. This should not be classified as a Engineering & Construction company. It’s a highly efficient mass (low cost) producer of oil & gas infrastructure.
9. TransOcean, Inc. (RIG) - love National Geographics’ “Oil, Sweat, and RIGs” series.
10. Chesapeake Energy Corp. (CHK) - Natty (natural gas) is so much cheaper on a BTU energy basis than oil. L.A.’s Long Beach harbor is already switching to NatGas for clean energy, other municipalities will do the same.
11. First Solar, Inc. (FSLR) - CdTe is the RIGHT semiconductor material for capturing solar energy, silicon is not. Simple as that.
12. L-3 Communications Holdings Inc. (LLL) - Best defense contractor. Period. Little to no operational risk and in a highly efficient niche of government contracts. No design and manufacturing problems that everyone from Lockheed Martin (LMT) to Northrop Grumman (NOC) and Boeing (BA) deal with daily. Raytheon (RTN) could have been like LLL, except RTN’s management prefers to run RTN like feudalism Japan.
13. Corning Inc. (GLW) - How awesome is that signal on the oscilloscope for the ClearCurve optical fibers?!?!!! THAT…is what gives engineers wet dreams.
14. Apple Inc. (AAPL) - iPhone should NOT a smartphone and shouldn’t be compared to a Blackberry (RIMM) or a Nokia (NOK) product. The iPhone is a full-fledged tablet PC with a complete operating system.
15. FTI Consulting, Inc. (FCN) - Anticipating lots of legal activity required in the aftermath of the credit/mortgage apocalypse. Municipals suing financial corporations, corporations restructing, etc.
16. Annaly Capital Management, Inc. (NLY) - Attempt to be the vulture, not the meat in this credit crisis. I can take the pain. No pain no gain.
17. Hologic Inc. (HOLX) - @ forefront of women’s diagnostics technology. Because like most people, I have a mother.
18. Altria Group Inc. (MO) - Yield, weak dollar, defensive diversification.  Don’t smoke. It’ll make you ugly…like a camel.
19. McDonald’s Corp. (MCD) - MickyD’s Baby! Yield, weak dollar, defensive diversification.

**Disclosure: Author is long UNP, POT, RIO, PCU, PCP, ABB, FWLT, MDR, RIG, CHK, FSLR, LLL, GLW, AAPL, FCN, NLY, HOLX, MO, MCD as of this post. **