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Berkshire Hathaway Purchase Sends Chicago Bridge & Iron to New All-Time Highs

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On Wednesday, May 15, Warren Buffett's holding company Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) revealed that it had added a position in Chicago Bridge & Iron (NYSE: CBI) in the first quarter of 2013.

The news, which was disclosed in the company's 13F filing showing Berkshire's long equity portfolio as of March 31, has sent the stock to new all-time high levels. Over the last five trading sessions, CBI is up a little less than 11 percent and the stock hit a new high of $63.41 as of the close of trade on Monday.

Given the size of the position, Warren Buffett probably didn't have any input into the purchase and it is more likely that the decision was made by Todd Combs or Ted Weschler who each oversee around $5 billion as co-investment managers. Berkshire bought around 6.5 million shares of the Netherlands-based engineering and construction services company valued at roughly $404 million.

Since hiring Combs and Weschler in the last three years, Buffett's stock picking has been limited to stakes valued well in excess of $1 billion. In recent years the legendary investor has learned to delegate and restricts himself to major purchases while his underlings run their own portfolios.

According to Buffett, this has worked out quite well. In March he gave the co-investment managers more money to manage after they both beat the S&P 500 and left him "in the dust," he said. “We hit the jackpot with these two," wrote Buffett. “Todd and Ted are young and will be around to manage Berkshire's massive portfolio long after Charlie and I have left the scene.”

Chicago Bridge & Iron is an infrastructure play which should benefit from a continued rebound in the global economy. The primary markets that the company serves are in the energy and natural resources industries. Last year, CBI acquired rival Shaw Group in a $3 billion takeover that created one of the world's largest and most diversified infrastructure companies.

Over the last 52-weeks, the shares have soared better than 76 percent and have recently surpassed all-time highs last touched in early 2008. The company has been aggressively growing its revenue in the last 3 years after seeing a sharp drop in the wake of the financial crisis. On a quarterly basis, revenue growth has been particularly impressive. Trends in net income and margins have also been ticking higher.

Using traditional metrics, the stock also appears undervalued. Despite obvious operating momentum at Chicago Bridge & Iron, the stock trades at a modest forward P/E of 12.38 and a PEG ratio of just 0.64. One drawback to the security, however, is its meager dividend yield of just 0.30 percent at current levels.

It is clear that now that Berkshire is on board in CBI the market is taking another look at the stock. The strong up-move over the last three trading sessions has come on heavier than usual volume and CBI looks like it could continue to break higher now that it has retaken its old highs from 2008. Chicago Bridge & Iron is a fundamentally sound play that is enjoying renewed operating momentum amid an ongoing recovery in the infrastructure and industrial sectors.

Posted-In: Ted Weschler Todd Combs Warren BuffettLong Ideas News Hedge Funds Movers & Shakers Technicals Management Economics Trading Ideas General Best of Benzinga

 

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