Bull Stocks Infrastructure

My project over the last week has been evaluating infrastructure companies. I restricted myself to those that were exceptionally well diversified internationally. I refused to look at anyone who had more than half of their revenues from the US, eliminating companies like SGR and USB. My thesis is that the expansion of infrastructure especially internationally will continue for at least the next 12-18 months. I evaluated ABB, ACM, FLR, FWLT, JEC, and MDR.

THE INVESTMENT
In my opinion the best stock AND company in the sector for my thesis is Foster Wheeler (FWLT) for the reasons below:
-Geographic diversification (12% of revenues from N America)
-Diversification across industry (Refining, Chemical, Power, Oil&Gas upstream, Pharma)
-They'rerelatively inexpensive 20x forward earnings with 20-25% growth visible for the next few yrs
-Record levels of backlog greater than annual revenue last year
-Strong cash flow
-High Margins
-Consistent cost improvement over the last 18 months

THE TRADE
That said, I think there's a better trade (rather than investment) available in the industry. It's available by going long MDR and short JEC. The cheapest stock in the sector is McDermott (MDR), well diversified internationally, focused on the oil side of things, both upstream and refining. Trades at 15x forward earnings, has a HUGE backlog, is arguably the best of all of these at building oil rigs, and has high margins.

Jacobs Engineering (JEC) is the shakiest of the companies in the sector. JEC is well diversified by industry and also has a massive backlog, give them that. They are concentrated in Europe and the US, with a decent Middle East and India presence but no China exposure. They've been growing very fast over the last 5 years, but have not been able to translate revenue growth to their bottom line profit, especially as other have improved lately (aka they're slacking in margins). Their cash flow is weak relative to others and they're not getting as good of quality terms on payment as their peers, reflected in their spiking accounts receivable. The kicker is the streets expectations: $3.72/share of earnings in 08. The company's most recent guidance is for 2.95-3.25. This is a huge gap, and I don't think the company has a 25% surprise in them, so the street has to reprice the company eventually.

All said, I think a great zero-equity strategy, barring new adverse material information coming public would be long MDR, short JEC to take advantage of the changing premiums that Wall St will pay for the companies.

Full disclosure: As of writing this at 3:20pm 2/6/08 I am long FWLT. I also have the zero equity strategy described in play on our stock game on investopedia.com in fake money, obviously.