Five Sleepy Big-Caps Set to Wake Up

Five Set to Take a Nap

Here are five stocks that look as likely to stagnate now as the big-cap growth stocks I named back in 2001. The valuations of the five, which are all in heavy machinery or engineering services, are stretched and they offer only limited upside. Business at each is quite good and future prospects appear to be good, but the good news is already reflected in their stock prices.

Manitowoc (MTW - commentary - Cramer's Take), a manufacturer of heavy cranes and food service equipment, has run up from $16 to $77 in less than three years. The company is doing everything right, generating robust sales with robust margins. But if you believe that all companies run in cycles, as I do, the good times won't last for Manitowoc. And even it they do, most of the positive potential is already priced in to the shares.

I recommended engine maker Cummins (CMI - commentary - Cramer's Take) at $38 to RealMoney readers in my top 10 turnaround list at the end of 2001. At the current quote of $108, the company is fully valued. This operating structure is difficult to model because of the heavy cyclicality. The key here is that operating margins, returns on capital and other metrics are at peak levels that will be difficult to sustain.

The engineering company Shaw Group (SGR - commentary - Cramer's Take) is enjoying a record backlog and rising profits. At $34 a share, the stock is up about threefold off of its 2004 lows and fivefold from its low in 2003. The question is not whether Shaw is thriving -- it is. The question is whether the good news is already reflected in the stock price. I think the answer is yes.

At $81 a share, Fluor (FLR - commentary - Cramer's Take) has had quite a run-up from $20 in 2002. While business for this global engineering services firm is clearly on the upswing, the stock more than reflects the positives. By my calculations, if the stock stays about where it is now, the underlying business value will catch up in two to three years.

I recommended Jacobs Engineering (JEC - commentary - Cramer's Take) about a year and a half ago at $37.49. Since then, it has run up to $85. The operating improvements and expanded backlog at this superb company are built in to the share price. If you're looking for bargains, this one doesn't fit the bill.

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At time of publication, Alsin and/or ACM was long Home Depot, Wal-Mart and Microsoft, although holdings can change at any time.

Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor, and portfolio manager of The Turnaround Fund, a no-load mutual fund. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback; click here to send him an email.