Chicago Bridge & Iron Isn't Falling Down

With more than 5,400 stocks to choose from, the universe of investment possibilities is enormous so looking for stocks based on what you already know and own might be a path to pursue.

Motley Fool CAPS, the 180,000 member-driven investor community that translates informed opinion into stock ratings of one to fives, helps you focus your attention by providing you with a personalized "Stock of the Day." Using its supercomputer, it looks at stocks currently in your active pick list and then scans stocks picked by highly rated players with lists similar to yours as well as industries in which you currently have active picks, and targets areas in which you already have an interest.

By pairing up the opinions of some of the top investors in the CAPS community, CAPS provides you with a handful of companies on which to begin your own due diligence and research.

Buy what you know
No doubt based on my having rated industrial conglomerate McDermott (MDR) to outperform the broad indexes, the CAPS supercomputer thought I also might be interested in construction and engineering firm Chicago Bridge & Iron (CBI), which is neither in Chicago (it's based out of the Netherlands) nor builds bridges (it supports the oil and resources industries). It was one of five "Stocks of the Day" offered up for my consideration this week.

Oil drilling and ore mining have become prime targets for selective investors looking for the choicest stocks to buy, but just remember, as smart as the CAPS algorithm may be, it's still just an algorithm. So be sure to look before you leap on any of its suggestions.

Chicago Bridge & Iron snapshot

Source: FinViz.com

In my sights
With Europe's financial situation still largely unresolved, uncertainty reigns supreme and it affects the decisions of businesses to invest in new projects. As a result, top industrial companies have been falling short of analyst expectations with huge conglomerates like General Electric (GE 1.12%) and Honeywell (HON 0.90%) missing the revenue mark.

Chicago Bridge & Iron was one of the fortunate few, exceeding Wall Street profit forecasts by a penny as net income rose 11% to $80.2 million, or $0.82 per share, well ahead of the $0.72 profit it recorded a year ago. Revenues came in 15% higher, driven by increased global demand for energy infrastructure, particularly in the LNG, gas processing, and oil sands lines.

In particular, revenues from its biggest engineering and construction segment surged 27%, driven higher by the REFICAR refinery in Colombia and the construction of Dominion Resources' (D 0.64%) gas processing plant in West Virginia. It's enjoyed a high rate of new awards in gas processing, oil refining, and petrochemicals, with the total hitting $145 million in the third quarter, and $582 million over the first nine months.

The only segment that saw declines was its steel plate business, where revenues fell 3% to $496 million as it completed many of its projects in the Middle East. With new ones coming online in Australia, however, look for the segment to regain traction.

What may be most exciting for its future potential is its proposed $3 billion acquisition of Shaw Group (NYSE: SHAW), which will give it an influx of order backlog that will put it second only to Fluor (FLR -0.18%) in terms of size. Jacob Engineering (J -3.98%) has witnessed strong order flows, too, with its backlog rising 11% to nearly $16 billion, so adding Shaw's line will strengthen its ability to compete against Fluor and KBR (NYSE: KBR).

The takeover, though doesn't promise to go smoothly; there are some objections from large shareholders, and Shaw reported a fall off in its own order flow that may make 2013 a bust.

Regardless, Chicago Bridge & Iron seems poised to burnish its reputation as a premier construction and engineering firm and trades at valuations identical to industry peers. I like that, because it's hiding in a crowd. Most investors won't notice that its enterprise value goes off at a very discounted 11 times its free cash flow, making it a bargain in my eyes. Only KBR with an EV-FCF ratio of 13 comes close. Fluor goes off at 18 times its FCF; Jacobs, 25 times; and Foster Wheeler (NASDAQ: FWLT), 38 times.

Tell me in the comments box below, however, why you might think Chicago Bridge & Iron is about to collapse.