Heavy Construction Emerging As A Hot Industry

By | March 23, 2016

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The heavy-construction industry group is rising sharply in IBD’s rankings, unearthing a few interesting choices for investors. The group ranked No. 25 out of 197 in Wednesday’s edition. That’s a huge jump from No. 156 six weeks ago. Unlike many other groups, it has paced the broad market’s advance since the mid-February lows. A combination of new taxes, a new highway bill and the entry of private equity into government projects has been driving the industry’s advance, says William Bremer, senior industrial and infrastructure analyst at Maxim Group in New York. Some state and local governments, seeking to make up lost revenue from the commodity crunch, raised gasoline taxes and other fees, which provided some new funding. Then in December, a five-year, $305 billion federal highway bill was signed into law. After years of patchwork funding, the bill gave governments the ability to move forward on major road and bridge projects. In addition, Bremer says, private equity firms have been partnering with some government agencies on public works projects. That has helped governments limit risks. Labor-force trends also favor construction companies. A couple of the group’s leaders started rallying after their earnings reports and have broken out of bases. Granite Construction ( GVA ) — on which Bremer has a buy rating and a 50 price target — is a bit extended from a 44.50 buy point. The roadway construction company has a backlog of $2.9 billion. “It’s staggering what’s coming down this pipeline,” he told IBD Wednesday. Granite, which is more focused on highway projects than some other companies in the industry group, last week won a $209 million job for an interstate project in Alabama. Thinly traded Primoris Services ( PRIM ) has also broken out of a base. Shares are trading near the 24 buy point amid indecisive behavior following the March 17 breakout. Dallas-based Primoris has grown into one of the largest infrastructure-building companies in the nation. It works largely on oil-industry projects, but it also does work on roads, utilities and other areas. In an investor presentation, the company highlighted 11 acquisitions it’s made since it went public in 2008. It is still seeking buyouts. Aecom Technology ( ACM ) is forming a base and is approaching a buy point at 33.22. Although it’s crafting a decent-looking base, the company’s EPS Rating is lagging below 60. Despite a minuscule EPS increase of 1%, the company’s results for the December-ended quarter topped expectations. Sales have been declining for four quarters in a row. Jacobs Engineering ( JEC ) is forming a similar base, this one with a buy point at 45.51. Both bases suffer from a substantial show of accumulation, although they are not exactly laden with distribution. Jacobs, based in Pasadena, Calif., is not the hard-hat company that others in the group are. The company is a leader in telecom, life sciences and other high-tech fields. As a NASA contractor, Jacobs supports the space agency’s experiments at the Ames Research Center in California. Image provided by Shutterstock . Scalper1 News

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