Construction and engineering businesses have felt the pain of this recession acutely, as cutbacks in large, capital-intensive, long-term projects have slowed revenues and earnings.

Some engineering companies have forward bookings of very large projects. However, it is not always best to evaluate their revenue and earnings on a quarter-to-quarter basis, as the pipeline for these projects often takes more time, sometimes on the order of several years. These companies and their stocks should be viewed in that light. Even so, it was a hard year for large infrastructure companies.

Making It Through The Down Times
Despite the recession, Fluor (NYSE:FLR), the largest engineering company in the U.S., has shown steady, consistent growth in the last three years, with a 17% revenue growth rate. Its revenues flattened during the recession along with its earnings, but the company's five-year earnings growth rate is expected to be 11%. Although Fluor and other behemoth companies have felt the effects of the recession this year, it doesn't mean signs of improvement are not evident. Fluor is the lead company in a $1.6 billion government stimulus project to manage cleanup at a nuclear site near the Savannah River in South Carolina.

IN PICTURES: 8 Ways To Survive A Market Downturn

Major Projects On The Horizon
The stimulus money for Fluor is not the only sign of positive forward movement in bookings and, ultimately, for revenues for the large engineering firms. Not only is the Department of Energy project on tap, but with the increased U.S. involvement in Afghanistan, more military construction work also looms for the Department of Defense. Other large firms will benefit from the government spending, as well as the pent-up need for global infrastructure spending. The fact that governments and industries didn't spend on upgrades and improvements doesn't mean that aging plants, equipment and systems will not need to be repaired, rebuilt or built from scratch eventually.

Money Managers Aware
Foster Wheeler (Nasdaq:FWLT) was cited in an interview with Russell Croft of the Croft Value Fund as a good value due to the coming increase in global infrastructure and energy work. Likewise, Fluor and other companies such as the Shaw Group (NYSE:SHAW) are poised to take on what will be an enormous amount of work retro-fitting coal-burning power plants as the new carbon laws mandate. These firms also construct power plants. Although demand may peak in the next few years, there is work on the horizon for these companies. Other infrastructure is also needed. ABB (NYSE:ABB), the Swiss power-construction company and leader in automating technology for power systems, is a part of ongoing global work that is due to expand. Jacobs Engineering (Nasdaq:JEC), another large diversified global engineering firm, had a recent earnings miss which shouldn't deflect attention from its long-term good positioning in the industry, as it, too, is expected to pick up substantial new business.

The Stocks of Engineering Firms
Fluor and the others saw their stock prices fall during the year, and many were trading at P/Es around 10 or 11. Think of these engineering giants as heavyweight industry stars that take time to regroup. But once these companies get their revenues and earnings momentum back on track in the next couple of years, the stocks may be poised for some surprising and substantial gains.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis article, risk free!

Related Articles
  1. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  5. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  6. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  7. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  8. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  9. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  10. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>

You May Also Like

Trading Center