Doing some catch up on this stock. I added Fluor (FLR) to the Jubak Picks 50 long-term portfolio https://jubakpicks.com/jubak-picks-50/ on January 18, but this is the first time I’ve had an opportunity to explain why in detail or to actually add it to the portfolio. I’m working on explaining the other sells and buys announced on January 18 from that group over the next week or so.

It’s only one deal but it’s an important one: Last month Fluor (FLR) announced that it had won a $3.5 billion contract to build a liquefied natural gas project in Australia.

Why is one deal so important? First, because it demonstrates that Fluor can sign big energy infrastructure deals in the face of intense competition from Asian engineering and construction companies—in the Asian companies’ backyard. Second, the deal will add to a near record order backlog at the end of the third quarter. (Fluor reports its fourth quarter numbers on February 23.) Third, most Wall Street estimates for Fluor’s earnings in 2011 are based on a shift in the mix of the company’s projects from energy to lower-margin mining work. Standard & Poor’s, for example, sees revenue climbing at a double digit rate in 2011—after a 5% decline in 2010—but with operating margins falling from the 5.2% rate in 2010 on a shift toward mining and away from energy. More energy projects in 2011 would push margins above analyst estimates. And I’d say there’s a good chance for higher than expected levels of energy work with oil prices pressing $100 a barrel at the moment. (Brent Crude futures traded at $99.29 a barrel on February 7.)

Fluor looks to be a major beneficiary of the huge surge in capital spending in the oil and gas industry (For example, Chevron has announced a $26 billion capital spending budget for 2011, up from a $21.6 billion budget in 2010), in the mining industry (Rio Tinto, for example, reports that it will raise its capital budget for 2011 to $11 billion from $5 billion in 2010), and in infrastructure spending by governments from China to Brazil.

New Fluor CEO David Seaton, who just took over the top slot, says that Fluor can double its sales and order backlog over the next ten years. There’s a measure of the new guy’s desire to rally the troops in that prediction, but Fluor actually shouldn’t have a big trouble in reaching those targets. Revenue went from $9 billion to $22 billion from 2001 to 2009.

The shares aren’t cheap at the moment trading at 21 times trailing 12-month earnings per share. The market seems to be looking past a projected 45% drop in earnings per share in 2010, caused by delays in some projects due to a spotty global economic recovery, to a projected 60% increase in earnings for 2011. In November the shares sold off on the company’s earnings report—stocks that have outperformed the market and then miss a quarter tend to do that. If you don’t own shares or want to add to a position, you might wait for something similar after the February 23 earnings report to give you a good buying opportunity.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Fluor as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/