The construction industry suffered a massive downturn during the
latest recession. Part of this huge industry, housing, remains
depressed. Recent numbers from February suggest sales of previously
owned homes fell by 9.6 percent - not exactly encouraging numbers
for homebuilders that are hoping for lower inventory numbers to
help boost demand for new homes.
But despite these fluctuations in the housing market, I remain
optimistic that there is money to be made for investors who pick
their construction exposure carefully. I'm not just saying this
either - I recommended a stock with exposure to housing and
construction in September 2010, and subscribers to
Small Cap Investor PRO
are currently up 56 percent. You can learn more about this stock
Opportunities are typically easier to find in a deeply depressed
sector - they just don't tend to look like opportunities at the
time when you should be a buyer.
While homebuilding could continue to suffer for many years,
other aspects of construction are moving ahead, especially in
communications and power utility infrastructure.
One well-run construction company turned in three profitable
years during the recession. That company is
a $1.6 billion company that was founded in 1929. MasTec has
operations primarily in the Southeast, but also has a substantial
national presence. It builds and maintains electrical transmission
lines, wind and solar farms, and other utility and communications
Take a driving vacation across the country and you'll notice
that America's infrastructure is crumbling. But despite the budget
woes of most local and state governments, municipalities don't
appear ready to eliminate the necessary maintenance, and that is
good for MasTec.
Utilities are adding power generation capacity.
Telecommunication infrastructure is about to undergo a 4G wireless
revolution. And it's starting to look like we're going to need all
the natural gas that we can drill and deliver.
Check, check, and check - all of these infrastructure upgrades
should help MasTec boost revenues and EPS.
Part of MasTec's business includes handling installation for
DirecTV (Nasdaq: DTV)
. Back in 2007 - the company's last unprofitable year - DirecTV
accounted for nearly half of revenue. Now, the company's
forward-thinking executives have plans to transition away from
dependence on this major customer. They now emphasize
higher-growth, higher-margin sectors of energy, and renewed focus
on wire-line and wireless.
MasTec's stock rose nearly 17 percent in 2010, but it really
came alive in the fourth quarter with a 41 percent surge. One
reason for the rally was the announcement of an investment in
power-transmission contractor EC Source, which is expected to lead
to a merger in the first half of 2011.
While MasTec continues to report an improvement in its DirecTV
business, I like the potential of its wireless infrastructure
will soon upgrade to a true 4G network and MasTec has an
eight-state exclusive construction contract. It's also working to
add business with other wireless carriers ready to deploy 4G or LTE
At the same time oil and natural gas infrastructure is expanding
across North America. MasTec has made growing that business, along
with its roster of industrial customers, a top priority.
Natural gas is plentiful, and the industry predicts the miles of
pipeline construction to jump at least 40 percent over the next two
years alone. MasTec will help put this pipe in place.
As we place more value on renewable energy, MasTec is ready and
can handle wind, solar and bio-fuels construction too.
In 2010 MasTec surpassed its goal of $2 billion in revenue by
generating $2.3 billion - a 42 percent increase over the year
before. EBITDA also shot up 57 percent to $241 million from $153
million. Net income rose 28 percent to $90.4 million, and cash flow
jumped 76 percent to $218 million.
In addition to a rise in the company's share price, investors
were pleased with earnings of $1.05 per diluted share, which MasTec
predicts to reach $1.20 to $1.23 in 2011.
As America recovers small-caps like MasTec will lead the way. To
help you find the best names in this highly profitable, yet largely
unknown, asset class, I've put together a report on
my favorite five small-caps for 2011. You can find
this report here.