This 'No-Frills' Stock Offers 30%-Plus Upside

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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 infrastructure spending.

Begun as a shipping company more than a century ago, Manitowoc Co. (NYSE: MTW ) 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, respectively.

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 crane sales.

2014 Manitowoc
Demand for Manitowoc's high-margin cranes is driven by the commercial construction and energy infrastructure markets.

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 summer months.

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 ( PEG ) 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 highs.




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: PEG

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