September 27, 1996
The Shaw Group Inc. (NASDAQ: SHAW)
11100 Mead Road; P.O. Box 40187
Baton Rouge, LA 70835
Closing Price, September 26, 1996: $36 1/2
Trade: Selling 100 shares
On April 12, 1996, the Boring Portfolio acquired 300 shares of SHAW at $18 3/4, plus broker's commission. The Shaw Group is the largest piping systems fabricator in the U.S., serving primarily the electric power, chemical, and refining industries worldwide.
On August 1, I announced my decision to sell 200 of the 300 shares, based on my target price for the year of $30 -- which the stock had essentially attained in less than four months. I held on to 100 shares (which based on the stock's appreciation were essentially "free" to me), however, out of respect for SHAW's impressive strength relative to the rest of the market.
Good thing, too. After a brief rest in the upper $20 range, SHAW resumed its climb into the $30's on consistently strong trading volume. It was pretty clear that SHAW had caught the eye of a fairly good-sized institutional investor.
On top of that, a popular magazine for individual investors is currently featuring SHAW as one of its "hot stocks."
It's around this time that Boring begins to get restless. When adding a sprinkle of small-cap stocks to the Borefolio, my idea is to find a stock before the other guys and then to exit at about the time the stock's attained celebrity status.
Today we learned that Shaw Group is following the lead of America Online, JLG Industries, and a number of other companies in immigrating from the Nasdaq to the Big Board, now that the company meets the NYSE's eligibility requirements. Pending NYSE authorization, the company said trading on the NYSE is anticipated to begin in mid-October.
In the company's press release, J.M. Bernhard, Jr., president and CEO, commented, "The decision to list our Common Stock on the world's most recognized exchange emphasizes our commitment to maximize shareholder value, as we believe the listing will help lower transaction costs, reduce trading volatility and provide greater liquidity. In addition, being listed on the New York Stock Exchange should provide us with greater exposure to the worldwide investment community."
For what it's worth, I think he's exactly right. It's a terrific decision. Everything appears to be clicking for the company.
The enthusiasm surrounding this news has now pushed the stock to where it's trading at 24-times projected EPS of $1.51 for FY97, which ends in August. True, even that healthy multiple is well below what would represent a 59% EPS advance over FY96 if all worked according to plan. But presumably stocks are valued on a company's likely *sustainable* earnings (or at least I persist in thinking so); and 24% annual growth is pretty tough even for piping-hot Shaw Group to sustain, in my opinion.
Therefore, I've decided to sell the remaining 100 SHAW in the Borefolio sometime during the next five trading days, as per The Motley Fool's trading policy.
Is there a chance that I'm off base here and that the stock could continue to rise once it makes the move to the Big Board? Oh, indeed there is. So please don't base your investing decision simply on what I've decided. If after you've thought through the plusses and minuses you decide you'd like to stand pat -- or even buy more, then please go with your decision, not mine.
In any event, I've come to admire The Shaw Group as a company, and I'll continue to watch it develop. Should the stock prove to be a good buy at some later date, you may well find me stepping back in -- even perhaps at a higher price.
--Greg Markus (MF Boring)