Trading Obama's Budget
Cramer reiterated to viewers that he’s been tough on President Obama for his repeated, probably unintentional, attempts to wreck your 401k, IRA, and 529 because Wall Street provides the financing for Main Street. So thinking you can bash one without hurting the other makes no sense at all. But, Cramer is going forward by going through the President’s new $3.8 trillion budget to figure out the stock plays that will get the biggest earnings per share boost courtesy of you, the taxpayer.
So who’s the biggest winner from Obama’s budget now that Uncle Sam’s become the life of the party? The engineering and construction stocks are some of the best plays. Specifically, Cramer said, the potentially most lucrative one is a company you’ve never heard of, URS . In 2008 URS attained 91% of its revenue from business in the United States. This is much more compared to competitors Fluor with 56%, Jacobs EngineeringGroup with 76% and Shaw Group with 78%. Plus, URS is a diverse company with many businesses that are favored by the Obama administration including environmental services work, military and technical services, training, operations, maintenance and, best of all, nuclear management. Cramer thinks this stock has potential wins all over the budget and that’s not all.
The most jaw dropping part of the State of the Union when it comes to the economy was President Obama’s support of commercial nuclear power development, pushing for three times the expansion of the nuclear loan guarantee program to $54 billion dollars. This is something that should have broad Congressional support on both sides of the aisle.
As it happens, thanks to the acquisition of Washington Group in 2008, URS is now a major nuclear player with an experienced team that stands to benefit from any nuclear plants that are built in this country. It’s one of only three engineering and construction companies with full nuclear power-design build capability. Shaw Group, the stock that everyone thinks of when they hear nuclear power, ran up after the State of the Union, but "Shaw is the sizzle, URS is the nuclear powerhouse."
Cramer is recommending URS because he thinks nuclear power’s time has come. And even though plants designed now won’t come on for six to eight years, it is URS that will give investors the best bang for the buck while you wait for the construction. This is something that Shaw Group doesn’t have going for it. Plus at $46 URS is seven points off its high, while the overheated Shaw is less than two points from its peak.
URS has a 43% exposure to the federal sector directly estimated for 2009 and a significant amount of indirect exposure. This company services everything in transportation, including a big chunk of the military business. Cramer told viewers that this is significant given the 3% increase in the Defense Budget and the 2% increase in the Transportation Budget. And with its strong relationship with the Defense Department, URS could possibly take an even larger share of this expanding pie.
Then there’s all the money in the stimulus package that’s just starting to hit, about $100 billion in total infra spending that the company can compete for. Plus, the President's proposed jobs bill could provide another $20 billion worth of transportation spending. URS could sink its teeth into this since 80% of the company’s infra business, which represents 19% of sales and includes transportation, public building and environmental and water projects, is related to the engineering and design of these projects, and not the construction-focused firms. On top of everything else, the president’s focus on emissions' control should be a boom for the company’s non-nuclear power business now that utilities are required to upgrade their power generation fleets in oder to reduce greenhouse emissions. This is one more area of expertise for URS.
Beyond Washington, URS should benefit as the recovery continues because the company has a heavy concentration in the U.S. and is less vulnerable to the China slowdown. URS’s industrial and commercial segment, which generates 23% of its sales, provides engineering, construction, and management services to oil and gas customers which should benefit from improved commodity prices, as well as mining, industrial and manufacturing players that may increase their spending as the economy improves.
Right now, URS trades at 12.7 times 2011 earnings with a 10% long-term growth rate, about even with Fluor, which Cramer likes also, trading at 12.6 times earnings with an 11% growth rate, and Jacobs Engineering at 13.1 times earnings with a 15% growth rate. URS also has a massive $17.9 billion backlog, 4.7 times the size of its market capitalization. Cramer told viewers that this is "huge" and a ratio he has flagged successfully in both Global Sante Fe, a drilling company soon to be taken over by Transocean and KBR shortly before a “gigantic” 10-point run off a $14 base.
The bottom line: Obama’s proposed budget isn’t essential to URS, but Cramer thinks it could be the best play on the administration's new spending plan.
Cramer's chartiable trust owns Fluor.
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