Time to Invest in Construction Companies?

For owners of construction stocks, the fallout of the subprime lending crisis has hit home in a big way. With prospective homeowners finding it difficult to obtain credit, this is not a good time to be in the process of selling new homes. Business construction has slowed too, as more companies are cutting back instead of adding to their existing facilities. Even in the worst of times, however, there are always companies still able to weather the storm. Here are four construction stocks whose strong performance will help build your portfolio:

1. Comfort Systems USA (FIX).

Comfort Systems USA specializes in the installation and maintenance of heating, cooling, and ventilation systems. While companies that rely on new construction are hurting, Comfort Systems USA has a relatively steady income that comes from repairing or replacing systems in existing buildings. Because a functional heating and cooling system is necessary for all businesses, the product is virtually recession-proof. Despite strong fundamentals, this stock has suffered along with the rest of the construction sector. A respectable 6.6% of its shares are currently shorted, which is a good contrarian investor’s signal. With impressive diluted earnings per share of $1.22, Comfort Systems USA is a cool oasis in a sector that has gotten burned.

2. Fluor Corporation (FLR)

Part of the heavy construction sector, Fluor Corporation provides infrastructure services, engineering, and project management for clients in a diverse set of industries such as telecommunications, biotechnology, and health care. Fluor also maintains numerous contracts with the United States federal government, including contracts for the Department of Homeland Security, the Department of Defense, and the Department of Energy.

Because Fluor has income for such a wide variety of services offered to such a diverse collection of clients, it has a stable stream of income even in difficult times. With diluted earnings per share of $3.93, Fluor is still performing well, and this success is reflected in the dividends it pays its investors. Purchasing Fluor is a good way to stabilize the infrastructure of your investments.

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3. Granite Construction (GVA)

Granite Construction is both a heavy civil construction contractor and a construction materials producer. The company is contracted by many state departments of transportation for projects involving everything from roads to schools. Granite Construction also works with developers to prepare for new housing, which is perhaps why investors have shied away from this stock.

Despite the recent housing downturn, however, Granite Construction’s fundamentals remain rock solid; with a leveraged free cash flow of 109 M and an operating cash flow of 266M, Granite Construction has the capital to survive even if the housing market continues to weaken. Currently, diluted earnings per share are $3.11. Granite Construction is a solidly performing company, even when compared to others outside the construction sector.

4. Preformed Line Products Company (PLPC)

Preformed Line Products Company, manufactures formed wire products used to construct and maintain both underground and overhead networks for information industries as well as clients in the energy sector. The formed wire products are used in conjunction with power cables and communication cables as well as in controlling cable dynamics.

With an impressive forward annual dividend rate of 2.30 % and diluted earnings per share of $3.30, Preformed Line Products Company is a good choice if you want to power up your portfolio.

The stock prices of construction companies have been beaten down, and now may be the time to invest in this section. Investments in the construction sector might benefit by investing in portfolio insurance with stock options. Stock options provide a way for investors to protect their stock trading portfolios against large drops in stock prices. A put option can be considered the same as stock insurance. Investors can purchase put options enabling capital preservation. Investors might also consider income generating stock options, covered call investing, for example. A covered call investing position enables investors to generate monthly income. Investors can also combine protective investing with income generation investing to generate monthly income while also being protected from a large loss. There are infinite trading systems available, but few offer the advantage of portfolio insurance as do stock options.

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[tags] construction, subprime, heating, cooling, ventilation, engineering, telecommunications, biotechnology, health care, Department of Homeland Security, Department of Defense, Department of Energy, networks, FIX, Comfort Systems USA Inc., FLR, Fluor Corp., GVA, Granite Construction Inc [/tags]