Even though Warren Buffett is not the only mind behind Berkshire Hathaway’s investments these days, with his hand-picked successors making many of the holding company’s new buys, it’s still worth paying attention to what Berkshire Hathaway Inc. (NYSE:BRK.A) is doing. We track quarterly 13F filings from hundreds of notable investors, including Berkshire Hathaway Inc. (NYSE:BRK.A), as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year). In its 13F for the first quarter of 2013 (see the full list of Buffett’s holdings), one of the largest new picks in Buffett’s company’s portfolio was its 6.5 million shares of Chicago Bridge & Iron Company N.V. (NYSE:CBI), a $6.9 billion market cap company which provides construction and engineering services to power plants and energy infrastructure companies among other customers.
With the shale boom in the onshore U.S., particularly in natural gas and natural gas liquids, there has been a frenzy of activity in building out the infrastructure necessary to support high production as well as to enable export of natural gas onto the world market (where natural gas fetches a higher price than in the supply-rich U.S.). With help from recent acquisition activity, Chicago Bridge & Iron Company N.V. (NYSE:CBI) grew its revenue by 87% in the first quarter of 2013 versus a year earlier, and if we add back acquisition related costs operating income was up by 72%. We would note, however, that the company now faces considerably higher interest expenses as a result of the transaction.
Peers for Chicago Bridge & Iron Company N.V. (NYSE:CBI) include Matrix Service Co (NASDAQ:MTRX), Fluor Corporation (NEW) (NYSE:FLR), Jacobs Engineering Group Inc (NYSE:JEC), and Caterpillar Inc. (NYSE:CAT). Matrix is in a similar situation to Chicago Bridge & Iron Company N.V. (NYSE:CBI), with very strong financial results in recent quarters and with the stock currently trading at 14 times forward earnings estimates. It is a smaller company, however, with a market cap of $430 million. Fluor and Jacobs also carry forward P/Es in the 14-15 range. In their most recent quarters, Fluor’s revenue grew 14% compared to the same period in the previous fiscal year, with margins contracting slightly; Jacobs, conversely, reported a 24% increase in the bottom line but sales were only 4% higher. We wouldn’t rule these companies out, but we’d generally consider earnings growth more sustainable when it results from high revenue growth as well as constant to improving margins. As for Caterpillar, that company has not been performing as well as a year ago. Even though it does trade at a discount to these other businesses, it seems like a less attractive buy.
Obviously a good deal of Chicago Bridge & Iron Company N.V. (NYSE:CBI)’s recent recorded growth has been acquisition related, but its industry does seem to have good prospects due to the tie to shale oil and gas. The valuation is not too expensive and while we might want to wait for another quarter of results we do think that it is at least a prospective value stock.
Disclosure: I own no shares of any stocks mentioned in this article.
