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NUMBER CRUNCHER

A way for investors to play North America's aging infrastructure Add to ...

We take a close look at the engineering and construction sector

Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients. mike@mikebowmangroup.com

What are we looking for?

Billions of dollars are being spent to upgrade our highways, subways, sewers, airports, electrical grids, water facilities, pipelines and refineries. My colleague Rob Belanger and I thought we’d take a look at the engineering and construction sector.

The screen

We sorted our companies by market capitalization, and all are more than $200-million.

Return on equity (ROE) shows whether a company is a profit creator or a profit burner, and if it is growing profits without pouring new capital into the business. We want a high number and it had to be positive.

Enterprise value divided by the earnings before interest, taxes, depreciation and amortization (EV/EBITDA) is used to determine the value of a company. A low ratio indicates a company could be undervalued.

The price-to-earnings (P/E) ratio compares the relative earning power. We are looking for a low number, and any company with negative earnings failed the screen.

The price to free cash flow (P/FCF) ratio is another metric that helps us compare the value of different companies. It represents the amount an investor is willing to pay for a dollar generated from a company’s operations. A low number is preferred and the cash flow had to be positive to make the grade.

Operating profit margin (OPM) is a measurement of what portion of a company’s revenue is left over after paying for variable costs such as wages and inventory. If a company has an operating margin of 20 per cent, it means that it makes 20 cents before interest and taxes for every dollar of sales. A high number is preferable.

What did we find?

One way to analyze this data is to find companies that scored better than the averages in these five categories. While none scored better in all five, six companies scored better in four of them.

Argan Inc. is a U.S. holding company that designs and builds power plants.

Bird Construction is a Canadian general contractor that serves the heavy industrial, and the commercial and institutional markets.

Aecom Technology is a global provider of technical services to the transportation, environment, energy and water sectors.

Stantec is a Canadian consultant in engineering and project management.

For over a century Canada’s Aecon Group has been providing road, rail and aviation infrastructure services.

MYR Group is a specialty contractor servicing the electrical infrastructure industry.

As always, investors should contact an investment professional or conduct further research before investing in any of the companies listed here.

North American engineering/construction stocks