Invest Like Graham With This Infrastructure Stock

I found some interesting stocks on the on the list that are worth the attention of long-term investors. I usually screen on asset-based criteria, so this was something of an eye-opener for me. I'll be adding this to my regular weekly screening runs.

One name that I found particularly appealing was LB Foster (FSTR Quote). The company is in a pretty good business. It provides products for infrastructure, primarily in railroads, highway and bridge construction and oil pipeline construction. These are all areas that should see significant spending in the years ahead -- I have already posited that infra has the potential to be the next bubble sector in the stock market over the next decade.

With this company you are getting in cheap with a nice margin of safety. LB Foster has 3 times as much cash as debt, to say nothing of assets. The stock trades at a P/E of 2, an EV-to-EBITDA ratio of 3.6 and just a hair above book value. Although revenues were down last quarter, profits beat Street expectations as margins and backlogs were up. If we do go to increased government infrastructure spending in a Keynesian fashion to spur the economy, LB Foster will be a huge beneficiary. The stock is heavily owned by Jeffrey Gendell at Tontine Partners and may have come under selling pressure amid the apparently false rumors of the fund's demise. There are no forms filed at the SEC to indicate he has been a seller of stock.

This market is still scary, and the underlying economic problems have not gone away. As always, even with those stocks too cheap not to own, I am buying slowly and leaving room to add on downdrafts in the stock market. From a long-term perspective, however, we are starting to see companies sell at valuations that should reward us handsomely over the next five years as long as the world does not end. I simply do not see that happening. We will recover and prosper in the future.

Benjamin Graham was not outdated in 1974, and he isn't today. Buying cheap stocks with a large margin of safety is still a good idea.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider LB Foster to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

This was originally published on RealMoney on Oct. 15, 2008. For more information about subscribing to RealMoney, please click here.