As we enter into the fourth quarter of the year, it is almost time for the steady flood of articles on investment themes for 2014. Pundits will try to predict which stocks will fit best into their pet social and demographic themes and suggest that untold riches await those who exploit these fast-growing trends.
It sounds like a really neat idea, but the truth is that it ignores the basic fundamentals of the companies involved. The best way to find real trends in society is to look at the fundamentals of the companies in the industry. When money is being spent as part of a real social trend, it will show up in the fundamentals of the companies involved in that business.
Infrastructure will likely be called a major theme. Pundits will suggest that the U.S. will finally spend money rebuilding our roads, bridges, electrical grid and water systems. It sounds like a great idea, because we all know that these things need major upgrades and we will eventually have to use public funds to replace and repair our infrastructure.
The problem is that that infrastructure stocks have been a “next year” theme since the 2008 election campaign. The budget problems at the Federal, State and local level have caused the spending to be delayed longer than most pundits expected.
If we look at the sector using Portfolio Grader, we see that many of the big names in the group like Flour (FLR), Granite Construction (GVA) and KBR incorporated (KBR) are rated “sell.” The anticipated spending for both government and private industry simply hasn’t materialized, and the companies are not seeing revenue or profit growth.
Infrastructure companies continue to fall short of analyst estimates, and the big money is pretty much ignoring the stocks until the fundamentals improve. Until we see the story turn into bottom-line growth, these stocks should be avoided — and investors who own these names should consider cutting their losses now.
However, there some pockets of opportunity in the infrastructure space. Chicago Bridge and Iron (CBI) doesn’t build many bridges anymore, but it does build storage tanks for liquids and gasses, which gives them an early edge in the rush to build liquefied natural gas facilities. The stock received an upgrade from Jeffries last week and is starting to attract some attention from Wall Street. The steady improvements in business conditions were picked up in Portfolio Grader, and the stock was upgraded to a “buy” in August.
There are a lot of good stories and themes in the stock market, but very few of them hold up to a close examination of fundamental conditions. Use Portfolio Grader to find the real stars with the most potential to make you money.
Louis Navellier is the editor of Blue Chip Growth.
