Berko: A primer on Chicago Bridge & Iron
Thursday, July 17, 2014 6:00 AM
Dear Mr. Berko:
In the summer of 2010, I bought 150 shares of Chicago Bridge & Iron Co. stock for less than $20 a share. I didn’t know much about stocks or investing, but I am from Chicago and had to invest $3,000 for my individual retirement account, so I bought the stock, which is now $83. I still don’t know much about the company, but my daughter, who is an engineer for a nonpublic infrastructure company, told me to buy 150 more shares in my joint account. Actually, I was thinking of selling the stock and buying AT&T and Verizon. Please advise me.
T.P., Joliet, Ill.
Well, Chicago Bridge & Iron Co. NV (CBI-$67.48) isn’t $83 anymore or home-ported in Chicago anymore. But because those shares could double in the next six years, I’d consider selling them in your IRA quick as a bunny. Then repurchase CBI in your joint account, where the potential capital gains taxes in six years should be enormously less. Then use the sales proceeds to purchase shares of AT&T and Verizon in your IRA. This will permit their generous dividends to be reinvested on a tax-deferred basis while more shares are purchased automatically for you till you decide to hang up your tools and collect your greatly increased, compounded dividend income.
CB&I built the first of its many bridges that crossed the Chicago River in 1889. And during the ensuing years, its engineering, maintenance and construction teams contributed importantly to the infrastructure of Chicago, as well as other cities around the nation. The first time I recommended the stock was in 1977, which was the year it was listed on the New York Stock Exchange. In 1996, Praxair Inc. (PX-$132.79), an industrial gas producer and seller, the shares of which I’d buy today in a Montana minute, purchased CB&I, cleaning it up quite well. Then, a year later, PX spun off 12.5 million of the newly formed CB&I’s shares at $18, keeping 38 million shares and booking a sweet short-term profit.
CBI has split twice (2-for-1) since 1997 and is listed on the NYSE. However, CB&I no longer has its home office in Chicago (too dangerous) and today calls the Netherlands its home. And I don’t blame the company. On a July evening in 1997, while I was walking to meet someone at the Chicago Tribune, three assailants asked me for my watch and wallet. When they turned to leave, I dumbly made an unkind remark, and one of them fired two shots at me. I can tell you that nothing is as satisfying as being shot at and missed! I’ve not been back to Chicago, a city that has the best (and fattest) cops and politicians that money can buy, since. However, I believe that CBI is a superb long-term investment, even though it’s home-ported in a foreign country.
CB&I doesn’t build many bridges anymore. Rather, during the past dozen years, this $13 billion-revenue corporation has become one of the most complete energy infrastructure-focused companies in the hyperspace. Projects include plants that generate electricity from nuclear, fossil and renewable fuels; upstream and downstream process facilities for the oil and gas industry; piping system fabrication; steel storage tanks; and pressure vessels for the oil, gas, mining, wastewater and mineral processing industries. This includes ground storage, tanks for liquefied natural gas, elevated water tanks, and module prefabrication and assemblies. CB&I also licenses its proprietary hydrocarbon and petrochemical technologies, including catalysts and specialized equipment used in refineries and petrochemical facilities. In addition, the company provides technologies for project development facilities, including valuable aftermarket support. An important source of CB&I’s revenues is “design and build” infrastructure projects for federal and state governments, including marine and transportation projects and environmental services.
CB&I is in a hot business; its revenues could top $20 billion by 2017, and per-share income is likely to grow to $8 from this year’s $5.10. In fact, an analyst at one of Wall Street’s finest (his fund owns a big block of stock) believes that CBI will split 2-for-1 again next year.
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