Should I Buy AMEC?

LONDON -- It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. Should I buy AMEC (LSE: AMEC  ) ?

My Bloody Valentine
The stock market is a capricious beast. Just ask energy and engineering consultancy AMEC. It has just published full-year results showing profit before tax up 8% to 336 million pounds, revenue up 28% on 2011 to 4.16 billion pounds, and underlying revenue growth of 21%. Its order book stands at a healthy 3.6 billion pounds, and it has even rewarded investors with a 20% dividend hike to 36.5 pence. And how did the stock market respond? By knocking 6% off its share price in the first 90 minutes of trading. Happy Valentine's Day, AMEC. Should investors show this stock a little more love?

AMEC's results were in line with expectations, but that's just not enough these days. Demand for its services is good despite the struggling economy. It completed two acquisitions, Serco and Unidel, and is successfully integrating both. It also bought 300 million pounds' worth of shares in 2012 and is just completing its 400 million pound share-buyback program. Chief executive Samir Brikho singled out a 14% rise in earnings per share, a 16% rise in operating cash flow to 309 million pounds, rising oil and gas revenue in the North Sea and Gulf of Mexico, and new contract wins in the Middle East. That leaves AMEC on track to achieve its targeted EPS of more than 100 pence by 2015. What's not to like?

Modest prevails
The market isn't interested in jam yesterday; it wants jam tomorrow. Despite a good 2012, underlying revenue growth is expected to slow to a "low-to-mid single digit" rate this year. Growth in the clean-energy, environment, and infrastructure markets will be "more modest," offsetting a strong performance in conventional oil and gas. Mining demand is down, and oil sands revenue looks set to soften. Perhaps the market is just feeling jumpy, with Japan, France, and Germany all posting disappointing growth figures. AMEC is exposed to any downturn. Plus there are the general risks, such as its vulnerability to a currency war and acquisition risk.

AMEC has had a disappointing Valentine's Day. It hoped for bouquets but got brickbats. That leaves it valued at a reasonable 13.7 times earnings and yielding 3.2%, covered 2.2 times. That is just below the FTSE 100 average of 3.5%, but it should rise if management continues its bullish dividend policy. EPS growth is 11% this year and 12% next. Recent share-price performance has been volatile, and it's best to buy a stock like this on weakness.

Now could be a good opportunity, but at The Motley Fool, we have found a much more tempting buy. In fact, our share analysts believe they have found the single-best U.K. growth stock of this year. They are so impressed, they have named it "Motley Fool's Top Growth Share For 2013." If you want to know its name, simply download our free report. It won't cost you a penny, so click here now.


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