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Tickers in this Article: FWLT, PCR, MDR, OMGI, GVA
Homebuilder stocks have spent the better part of the last three years going backward - and deservedly so in most cases. While the jury is still out on their short-term future, I think it's important not to lump heavy construction and engineering stocks into the struggling home construction group. The heavy construction sector is doing quite well.

It's All Relative
If the heavy construction stocks just kept pace with a benchmark like the S&P 500, I probably wouldn't care about this group. However, in my constant quest to find the real pockets of strength, I continually saw this industry's stocks at the top of my results list. In fact, I really couldn't find any time frame over the last few years where the heavy construction sector didn't outperform the broad market.

That's history though. For that strength to do us any good now, the heavy construction sector has to remain more valuable than the average stock going forward. Based on a survey of the major names in the sector, I believe these companies and their stocks do indeed have an edge on other groups. (For more on what to look for in the economy, see Economic Indicators: Overview.)

Building on a Trend
My gears started spinning again last Wednesday, when engineering and energy equipment company Foster Wheeler (Nasdaq:FWLT) improved its first-quarter gains by 20% over the previous quarter. Though the market disapproved of potential weakness in its solid-fuel-boiler arena, it was still a record-breaking quarter for the company.

When construction company Perini (NYSE:PCR) topped estimates after Wednesday's closing bell though, I had a feeling there was more going for this industry than just luck. The Perini news was simple enough; analysts forecast per-share profits of 87 cents for their first quarter of 2007, but the company instead posted earnings of 91 cents per share.

I dug back a little further, and found more of the same. For instance, Granite Construction (NYSE:GVA) swung to a profit during its last quarter. The company took a 5-cent per-share loss for Q1 of 2007, but earned 34 cents per share during Q1 of 2008.

And it's not just prior results that are hinting at investment opportunity in the sector. Contracts (i.e. future revenue) are being doled out as well. McDermott International (NYSE:MDR) was awarded $500 million worth of contacts earlier in the week, which is a nice bump for a company that's done $5.6 billion in sales over the last twelve calendar months. Last week, Orion Marine Group (Nasdaq:OMGI) was awarded a $25 million contract to build a dock in south Texas. Though the dollar amount is not large compared to the major names in the field, it's a big deal to Orion and its investors. Orion only saw $210 million in sales over the last twelve months.

Less Downside, More Upside
I opened up this article with a not-so-veiled dig at the homebuilders, though in all honesty, I'm starting to see them as values rather than liabilities. Aside from the fact that investors appear to have given up on the recent rebound attempt, it also seems like the real estate market news is nothing but bad anymore. All too often, when it looks (or sounds) like things can't get any worse, it's because they truly can't.

Speculative? Yes, but I know I've had a surprising amount of personal success when buying stocks nobody else wanted at the time, rather than jumping on the bandwagon later. Obviously much of any recovery for homebuilder stocks depends on a staved-off recession. But, based on the widespread worry we're seeing right now, I think we're close to the low point in the economic lull, or the capitulation.

Most of the heavy construction companies, on the other hand, don't subject investors to the same degree of economy-based risk. Even if the economy worsens and the dollar remains weak, many of these stocks can continue to benefit from strong foreign demand for their services.

Take McDermott's $500 million in new contracts, for instance. They came from OAO Lukoil, a Russian oil producer, and from Esso Australia Resources. Foster Wheeler's big improvement in its top and bottom line last quarter largely came from overseas customers: international revenue increased by 56%. Analysts expect the international market to remain brisk for heavy construction companies with overseas operations. (For more on the construction industry, check out Build your portfolio with Infrastructure Investments.)

To The Point
If the domestic economy happens to improve, heavy construction and engineering companies stand to gain from increased demand within their own border as infrastructure and capital spending ramp up. Until then, it seems the rest of the world still needs their services. The point is, we're seeing heavy construction pull in revenue, and turn it into profits.

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