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stock pick

Fabrice Taylor, CFA, publishes the President's Club investment letter. His letter and The Globe and Mail have a distribution agreement.

The next gold rush that investors should keep an eye on is the liquefied natural gas boom gathering steam in Western Canada. Like every other big commodity play, the LNG story will make a lot of people rich. But as usual, it won't just be the producers of natural gas. In fact, they might not be the biggest winners. In typical fashion, it'll be the "pickaxe" companies – the service providers who build the tens of billions of dollars of infrastructure needed to move gas from Northeastern British Columbia and Alberta to ports, and the tens of billions more to drill for the fuel.

There are a lot of investments to choose from but for diversification and growth I like (and own many shares of) Enterprise Group. I expect – along with many other analysts – big returns from this stock.

Enterprise operates five divisions that have a couple of things in common. First, they're all somehow related to the construction, installation or maintenance of underground infrastructure – pipelines, utilities, sewers and so on. Second, they're mostly niche operators that perform specialized tasks as opposed to the more commoditized general contractors that build, say, pipelines. In other words, Enterprise should earn significantly higher profit margins.

The five divisions are:

Hart Oilfield Rentals, which provides equipment for drilling camps, from the living quarters the workers live in to lighting to drilling mats and water systems.

Calgary Tunnelling specializes in the installation of underground pipes in tricky places – under roads, rivers and inlets for example.

TC Backhoe & Directional Drilling installs and maintains utility services such as power and telecom lines, especially underground. Its customers are phone, power and other utilities companies.

Artic Therm designs and rents flameless heaters. The biggest ones are used to heat steel pipelines as they're being installed underground. Most pipelines are built in the winter, which is the only time crews can get into remote areas. Heating the steel before it's welded together prevents it from buckling later when hydrocarbons are pumped through them, sparing pipeline operators expensive repairs.

E-One Ltd., which rents heavy equipment such as bulldozers to the civil and oil field construction industries.

Enterprise isn't a general pipeline contractor. It's a collection of businesses that will benefit enormously from the construction boom getting under way by offering high-margin, specialized services. Calgary Tunnelling, for instance, makes about 50 cents of profit from every dollar it charges.

Artic Therm is a pioneer, having discovered the benefits of heating steel pipe. Its big heating trucks earn $15,000 per day when rented, and they're pretty much booked up for months in advance. TC Backhoe is benefiting from growing communities in British Columbia and Alberta as utilities spend billions on residential and industrial infrastructure.

Here's what I like about this investment. First, in a curious way, it's a way to benefit from low gas prices. It is low gas prices that are pushing the development of LNG, and prices are low because of the shale gas revolution, which has expanded – and continues to expand – production.

Second, I like the way management grows. They've acquired an interesting collection of businesses that, in the hands of a corporation as opposed to the mom and pop entrepreneurs who started and ran them, can raise the required capital to expand.

Finally, besides the lift from the general rising tide of infrastructure development, Enterprise is growing revenues organically by cross-selling. Hart, for example, now rents Artic Therm heaters to its customers.

To get a sense of the interest in this story, consider that Enterprise announced a $12-million equity financing last month that was quickly doubled. Demand, the bankers told the company, was $63-million.

That raised eyebrows, as some fretted about dilution. But I think the raise makes sense: Enterprise can't meet current demand for its services, and most of the money will go to adding equipment at existing subsidiaries, rather than new acquisitions. There's no shortage of work, and now the company has the means to win it. This is organic growth – the best kind.

Investors should benefit nicely.