As investors flood out of momentum stocks, they're looking for
safety. There aren't many safe places to invest.
#-ad_banner-#But one place that's been depressed for a number
of years is infrastructure. And this area of the market has a lot
of pent-up demand -- and a number of growth opportunities.
So investors looking to take refuge from the momentum stock
sell-off might want to take a look at heavy-equipment makers,
which offer some of the best exposure to the rebound in
Begun as a shipping company more than a century ago,
Manitowoc Co. (NYSE:
is now one of the top crane and food-service equipment
manufacturers in the world. The company got out of the shipping
business in 2008 and now focuses on cranes and food-service
equipment, which account for about 60% and 40% of revenue,
Shares of Manitowoc have recovered from the lows they saw
after the real estate bubble burst, but MTW is still 40% off the
all-time highs it set in 2007.
Similarly, Manitowoc's crane revenues were close to $1 billion
a quarter back in 2008 but tumbled to only $450 million in
mid-2010. Crane sales last quarter came in at $466 million.
There's still plenty of growth opportunities to help reignite
Demand for Manitowoc's high-margin cranes is
driven by the commercial construction and energy
Demand for Manitowoc's high-margin cranes is driven by the
commercial construction and energy infrastructure markets. These
are two areas that have yet to see a meaningful rebound -- but
that could be set to change.
Energy infrastructure accounts for 30% of crane demand, so the
market should see some of the greatest growth coming from the
fast-growing oil and gas shale development projects across the
United States. One of the key drivers will be four or five
greenfield ethane crackers (plants on previously undeveloped land
that process natural gas into ethylene) that are expected to be
built over the next three to four years. These types of projects
typically require heavy use of cranes.
Natural gas production in the U.S. is up more than 40% since
2005. Shale production of oil really took off in 2011 and is up
over 50% since then. The winter weather has slowed production
from the shale plays, but it should reaccelerate during the
Until the crane rebound takes hold, Manitowoc's food service
business should help stabilize the company's revenue stream. One
of the world's largest food-service equipment makers, Manitowoc
provides equipment to a variety of industries, including hotels,
hospitals and quick-service restaurants. Sales in this segment
have grown from around $100 million per quarter in 2008 to just
under $400 million per quarter over the past few quarters.
As far as growth is concerned, the food-service sector is
benefiting from a strengthening economy. Restaurant owners are
starting to replace old equipment and open new locations.
Manitowoc also has the ability to cater to the broad market by
manufacturing both hot and cold equipment.
Manitowoc offers compelling growth at a reasonable price
(GARP), with a price/earnings-to-growth (
) ratio of 0.9. (Investors interested in GARP stocks should check
out my colleague Adam Fischbaum's article on another low-profile
company earlier this week.) Manitowoc is trading at a P/E ratio
of 14 based on next year's earnings -- much lower than its
historical average P/E of 24 and the P/E above 20 it consistently
traded at before the real estate bubble.
Risks to Consider:
Cranes are tied closely to the broader economy, which means
any weakness in the global economy could lead to lower sales for
Manitowoc. If the oil and gas shale boom in the U.S. slows,
Manitowoc's growth likely won't be as robust as expected.
Action to Take -->
Applying a modest multiple expansion to a P/E of 18 to expected
2015 earnings of $2.10 a share suggests a price target of $38,
which is over 30% upside -- and still 20% below MTW's 2007