We’re going back to the bountiful well of stimulus and infrastructure today, but this pick will profit more from energy than highway construction.
Here’s the deal…
There are 104 nuclear power plants in the United States. Building a new nuclear power plant is obviously expensive. But adding on to a power plant and increasing its output is a cheaper way to create electric.
In fact, 37 nuclear plants have undertaken an “uprate” project so far. And it’s assumed that almost all U.S. plants will… That’s why we’re buying into The Shaw Group (NYSE: SHAW).
Shaw participated in half of the uprate projects so far… and it has bids out on 67 more. At $250 to $500 million per projects, it’s an opportunity for a $25 billion boost to the top line.
Shaw has the inside line on uprate work and we think it’ll get a high percentage of contracts. It already has maintenance agreements with 40% of the nuclear industry, and it makes sense to have the same company perform the uprate upgrades.
Not only that, Shaw has a partnership with Westinghouse as a contractor for its AP1000 nuclear design – the Cadillac of nuclear power plants. Shaw currently has 10 brand-new plants underway, mostly in China.
If you’re concerned with “peak oil,” the likely outcome is a shift to other power sources like nuclear, coal (for which Shaw also builds power plants), natural gas (again, something Shaw builds) and others.
Across all its efforts, Shaw has over $22 billion in projects in its backlog, including $300 million in stimulus-funded projects.
I’ll likely provide a full analysis in the upcoming monthly issue, but prices are right today. So we’ll buy in now.
Action to Take: Buy The Shaw Group (NYSE: SHAW) for $31 or less.
Note: We are NOT buying Shaw Communications (NYSE: SJR), so make sure you use the symbol instead of searching for the name.
You’ll likely get an immediate fill since Shaw is currently below $31. We’re still waiting for Lindsay Corp (NYSE: LNN) to go below our $41.50 buy price. I know it hasn’t been there yet, but stay patient.
We had to wait two weeks for Cytec Industries (NYSE: CYT) to reach our price, but it was worth it.
Cytec and Perrigo Co. (Nasdaq: PRGO) are posting gains of 19% and 9%. Raise your sell stops to $34 and $36, respectively.
Meanwhile, MSC Industrial (NYSE: MSM) announced another earnings surprise. Shares jumped on the news, but now they’re pulling back… and we’ll get another classic drift upwards. Keep your sell stop at $41.
Power Integrations (Nasdaq: POWI) has drifted downward ahead of its February 4 earnings release and we’re just slightly profitable now. This is probably due to general downgrades of the semiconductor industry. I think that Power Integrations will show a break from the semi-conductor industry as a whole, because of its niche power supply focus. We’ll see if that plays out on February 4. For now, mind the sell stop of $30.
Ahead of the tape,
Matthew Weinschenk