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SIVY ON STOCKS from money.com
June 4, 2001 *****************[ A D V E R T I S E M E N T ]**************** Jump-start a child's College Fund with MONEY's $5000 QUICK CASH Sweepstakes! It's easy - just click the link below for your chance to enter to win $5000 Cash! Plus while you're at money.com, jumpstart your investments with a FREE Trial issue of MONEY! Click Here: http://www.money.com/scholarship ************************************************************** Building boom Prospects for a strong economy next year are boosting the share prices of companies like Caterpillar and Fluor. By Michael Sivy The stock market has been listless since mid-May, marked by low trading volume and weak share prices. But although the financial media seem to be focusing almost entirely on daily earnings warnings and weak trading volume trends, the accumulating evidence points to an excellent 2002. Most Fedwatchers think that chairman Alan Greenspan will cut interest rates at least one more time this summer -- probably at the June 26-27 meeting. Since rate cuts need six to nine months to take effect and the first cut occurred in January, the economy should be picking up by October at the latest -- and should continue to gather momentum through the early part of next year. The consensus forecast for 2002 is that the economy will grow more than 3 percent, that unemployment will hold steady below 5 percent, and that oil prices will come down slightly. That, in turn, should lead to a small decline in inflation. Accelerating growth combined with falling inflation is the magic formula for a rising stock market. And though neither trend figures to be strong, they both are definitely going in the right direction. Not surprisingly, such an economy is great news for cyclicals, such as construction-related businesses. One stock I like is Caterpillar [CAT], the world's largest maker of earthmoving equipment, especially big-ticket machines that can weigh more than 50 tons and sell for $500,000. I first recommended the shares in August at $39, or about 11 times this year's estimated earnings. Since then, the shares have appreciated 43 percent to $55.80. Despite that run, shares trade at just 16.4 times next year's estimated results, and are still 10 percent below their all-time high, set in 1999. One reason the stock's price/earnings ratio remains moderate is that profits are expected to rise more than 30 percent next year, as the economy rebounds. Such growth isn't sustainable, but longer term, earnings should be able to rise at a compound annual rate of 11 percent. Include the 2.4 percent yield, and the stock's total return potential still looks quite attractive. A slightly riskier, but potentially lucrative choice is Fluor [FLR], a leading construction and engineering firm that is just coming out of a major restructuring. Fluor manages enormous projects, such as building oil refineries and electricity-generating plants. Given U.S. energy needs over the next five years, as well as likely demand for other big construction projects as the economy rebounds, Fluor should be set to enjoy good times. The stock is up a little over 12 percent since I recommend it in April. At a current $57.40 a share, the stock trades at 23.4 times next year's estimated earnings. Profits are expected to rise more than 23 percent next year, and earnings could rise at a 12.5 percent compound rate over the next five years. Moreover, once a coherent U.S. energy policy is in place -- presumably before the end of the year -- investor attention will likely shift even more to a company that boosts the nation's capacity to keep gasoline and electrons flowing. ===================== Join Michael for a live AOL chat on Tuesday, June 5 at 1pm ET. AOL users go to Keyword: MarketTalk ===================== ### Post your comments on Michael's column at: http://www.money.com/depts/investing/sivy/index.html To subscribe or unsubscribe to Sivy on Stocks, go to: http://www.money.com/email/ ----------------------------------------------------------- CONTACT THE BIGGEST COMPANIES IN THE WORLD! Over 5,000 contact names in the OFFICIAL FORTUNE Databases. DOWNLOAD THEM NOW! http://www.fortune.com/sitelets/datastore/index.html?mn01 ----------------------------------------------------------- * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Special Internet Offer!!! 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