KBR's Strength Knows No Boundaries

One of the best infrastructure plays around is on sale. Business has slowed (as it has everywhere), but this company's customers are the very governments of the world. Who better to pay you than the one entity that can print money? And because governments have vested interests in maintaining their long-term infrastructure, defense and energy programs, odds are extremely low that business will come to halt. Best of all, this business is off 75% from its all-time high, has no debt, and has cash equal to half its market capitalization.

Niche Operating Environment

KBR (KBR - commentary - Cramer's Take) is a leading global infrastructure and services companies that supports the energy, government services and civil infrastructure sectors. Some of you may remember the company's name as a division of Halliburton (HAL - commentary - Cramer's Take). A couple of years ago, KBR became independent when Halliburton separated the businesses.

KBR operates all over the world and dominates a lucrative business niche: energy and defense spending. The company is the world's largest defense services provider and the largest contractor to the U.S. Army. KBR has had a hand in more than half of the world's liquefied natural gas production capacity over the past 30 years.

The scope of KBR's work is vast: It builds embassies, handles military logistical work (think housing and feeding troops) and utility plant projects and provides engineering support services and project management to governments and private entities. Its global clients include government agencies and private and state-owned enterprises. Much of this work is not held under the sway of the varying market environment -- KBR is involved in a $16 billion U.K. project with a timeline of 35 years. National security is a huge priority of every government and is unlikely to suffer serious budget setbacks.

A Very Cheap Business

Book value can be a very slippery value metric in a period of crashing asset prices, but it can also be a very comfortable margin of safety in the right businesses. KBR's book value is $2.3 billion against an equity value of $2 billion, and this company has more going for it than a 10% discount to book value.

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At the time of publication, Gad was long KBR, although positions may change at any time.

Sham Gad is the managing partner of the Gad Partners Fund and the Gad Partners Offshore fund, value-centric investment partnerships based in Athens, Georgia. Gad has written extensively for the Motley Fool and was a securities analyst for UAS Asset Management, a small, value-focused fund in New York City in 2007. Previously, Gad managed assets for the Gad Investment Group. For additional information, please visit www.gadcapital.com

Gad also runs a value-investing blog inspired by the teachings of Benjamin Graham and Warren Buffett. Additionally, he is currently working on a value investing book to be published by John Wiley & Sons in the fall of 2009. Gad earned his BBA and MBA at the University of Georgia. Send Sham Gad an email. You can reach Gad at [e-mail].