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A Buying Opportunity Is Born at Chicago Bridge

It happens. Every now and then a perfectly solid company punts a quarter, for reasons that generally can't be attributed to failure on its part. If the company is inherently sound, the result can often be a buying opportunity for investors.

That may be precisely the case at Chicago Bridge & Iron (NYSE: CBI  ) . This company is an energy-related purveyor of engineering and construction services, a Motley Fool Global Gains selection, and, unfortunately, a victim of circumstances beyond its control. But we saw this one coming. As the company had earlier warned, "inadequate subcontractor performance" and "an increasingly difficult trade union environment" in the U.K. would knock the props out from under its second quarter.

And they did. The result was a loss of $140.5 million, or $1.47 a share, compared to net income of $26.1 million, or $0.27 per share, a year ago. But back out the previously announced pre-tax charge of about $317 million, and you have an awfully nice quarter. In fact, charge aside, the per-share line would have had a $0.91 figure on it, or well more than triple last year's figure. And I'd point out that the company's shares are down more than 20% from early June.

Chicago Bridge's plight in the quarter could have befallen the likes of Matrix Services (Nasdaq: MTRX  ) , or the Shaw Group (NYSE: SGR  ) , or giant KBR (NYSE: KBR  ) , all of which it competes with to one degree or another. It's simply a risk you take when your business necessitates that you employ subcontractors, and when you're operating in a union environment.

But the real key at Chicago Bridge, as I see it, is that the company's backlog has grown by about 9% during the past year, and now sits at $7.4 billion. Projects added recently include a $400 million Canadian oil sands storage terminal, $150 million for a Canadian LNG peak shaving facility (no, not that kind of shaving), and $100 million for a refinery expansion project.

So the (temporary) damage has been done. Fools looking for new investments might want to take a look at Chicago Bridge. It's got a forward (2009) P/E of less than 12, a solid balance sheet, and -- easily most importantly -- a stellar reputation in the thriving world of energy engineering and construction.

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For the latest take on Chicago Bridge, along with a host of other Global Gains selections, try a free, 30-day no-obligation trial subscription to the international-investing newsletter.

Fool contributor David Lee Smith doesn't own shares of any of the companies mentioned above. He does welcome your questions, comments, or kibitzing. The Fool has a well-engineered disclosure policy.

Read/Post Comments (2) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 31, 2008, at 5:26 PM, mikane5 wrote:

    "Inadequate subcontractors " and "union enviornment" should have been a realized factor! A 7.4 billion backlog becomes an encumberance if you can't complete projects without penalty. Excuses are becoming a trend!

  • Report this Comment On October 28, 2008, at 9:54 AM, javnnf wrote:

    To say the least, this has been a gross miscalculation and sloppy analysis on the part of Motley Fool for CBI.

    CBI has been recommended in at least 3 letters, and since July the sticks are down by 80%. MF staff has chosen ignore my feedback and comment on their misleading recommendations.

    read this alternative report on CBI:

    The collective intelligence of CAPS is totally bogus-- 4-star rating for this all made-up PE/growth company?

    It seems the recommendation of CBI is a black mark on MF. It was a very irresponsible and misleading-- and I won't be surprised, a flavor of "keep-away" analysts.

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