Analysts are expecting global spending on energy and power infrastructure to grow nearly 10% a year for the next 5 years. Today we will look for values on companies in the global marketplace engaged in the construction of power plants and/or the associated electrical distribution equipment.
Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_07_23_Infrastructure.mp3
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Three likely candidates are General Electric (GE), Siemens (SI) and ABB Ltd. (ABB). These companies, when compared by market capitalization, are the 2nd, 42nd, and 164th largest companies in the world. The stocks have also seen crazy growth in the last 12 months. ABB’s stock has grown 112%, Siemens is up 96% and GE has returned a healthy 27%.
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But with all this growth, many among you may be asking, “Is there any growth potential left in these companies?” The answer many analysts find themselves giving is, “Yes.”
Four reasons why these 3 companies might be a good deal:
1)These companies all can squeeze greater profitability from internal restructuring. GE has recently sold its plastics division, Genworth and GE Insurance Solutions. GE is also lining up to make acquisitions in the oil, gas and water markets. Siemens sold its telecom handset business and plans to sell off close to $40 billion from its core portfolio in the coming year.
2)The global infrastructure market looks very favorable. China is expected to spend about $40 billion this year on power plants. The recently deregulated European countries are likely to spend more on increased power generation. And the always power hungry US is likely to beef up its power infrastructure over the next five years.
3)Financial returns are likely to rise as management increasingly focuses on its companies return on invested capital. This factor is largely attributed to private equity firms’ penchant for snapping up companies and selling off underperforming divisions. Large corporations like the three listed have learned from this approach and are expected to put a similarly critical eye to their internal divisions. Historically, maintaining market share would drive financial decisions, now profitability seems to be the chief concern.
4)The three companies mentioned are under new management. All three companies have a significant amount of new blood at the top and analysts feel this may lead to more profitable decisions in the future.
Looking at this News from an Options Trading Perspective:
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Potential Trades:
All of the following option trades have 64 and 92 days until expiration. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
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| Company Name |
Symbol | Stock Price |
OPTION | Strike Info |
Option Bid |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
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| ABB Ltd. | ABB | 24.09 | ABBIE | 07 SEP 25.0 (64) | 1.15 | 4.8 | 5 | 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ABB Ltd. | ABB | 24.09 | ABBIX | 07 SEP 22.5 (64) | 2.5 | 10.4 | 4.2 | 4.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General Electric Co. | GE | 40.12 | GEIH | 07 SEP 40.0 (64) | 1.34 | 3.3 | 3.1 | 3.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Siemens AG | SI | 146.59 | SIJJ | 07 OCT 150.0 (92) | 7.7 | 5.3 | 5.5 | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Siemens AG | SI | 146.59 | SIJI | 07 OCT 145.0 (92) | 10.1 | 6.9 | 6.2 | 6.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
These trades offer between 3.3 and 10.4% downside protection and between 3.1 and 9% potential profit. Note the Siemens trades have October expiration while the GE and ABB trades expire in September.
Competitors:
Competitors for ABB include: Siemens AG (SI), AREVA Group (private), Schneider Electric SA (private), Cooper Industries Inc. (CBE), Emerson Electric Co. (EMR), and Fluor Corp. (FLR).
Competitors for GE include: Citigroup Inc. (C), Koninklijke Philips Electronics NV (PHG), Siemens AG (SI), ABB Ltd. (ABB), Ametek Inc. (AME), AO Smith Corp. (AOS), Cooper Industries Inc. (CBE), Color Kinetics Inc. (CLRK), Emerson Electric Co. (EMR), Honeywell Inc. (HON), Itron Inc. (ITRI), Illinois Tool Works Inc. (ITW), Textron Inc. (TXT), and United Techs. Corp. (UTX).
Competitors for SI include: General Electric Co. (GE), Hitachi Ltd. (HIT), ABB Ltd. (ABB), ALCATEL LUCENT (ALU), American Superconductor Corp. (AMSC), ECI Telecom Ltd. (ECIL), Echelon Corp. (ELON), EMCORE Corp. (EMKR), Mettler-Toledo Intl. Inc. (MTD), Nokia Corp. ADR (NOK), Nortel Networks Corp. (NT), SonoSite Inc. (SONO), Tekelec Inc. (TKLC), and Thomas & Betts Corp. (TNB).
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[tags] China, European, AREVA Group, Schneider Electric SA, ABB, ABB Ltd., ALU, Alcatel-Lucent, AME, Ametek Inc., AMSC, American Superconductor Corp., AOS, AO Smith Corp., C, Citigroup Inc., CBE, Cooper Industries Inc., CLRK, Color Kinetics Inc., ECIL, ECI Telecom Ltd., ELON, Echelon Corp., EMKR, EMCORE Corp., EMR, Emerson Electric Co., FLR, Fluor Corp., GE, General Electric Co., HIT, Hitachi Ltd. ADR, HON, Honeywell Inc., ITRI, Itron Inc., ITW, Illinois Tool Works Inc., MTD, Mettler-Toledo Intl. Inc., NOK, Nokia Corp. ADR, NT, Nortel Networks Corp., PHG, Koninklijke Philips Electronics NV, SI, Siemens AG, SONO, SonoSite Inc., TKLC, Tekelec Inc., TNB, Thomas & Betts Corp., TXT, Textron Inc., UTX, United Techs. Corp., covered call investment strategy, investment strategy, iron condor, options trading, poweroptions, stock option trading, stock options [/tags]