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2 Unknown U.S. Companies to Rebuild Japan

Stocks in this article: CBI CLH

BOSTON ( TheStreet) -- Japan is at the onset of a massive period of rebuilding, in which many American companies will participate. Among them are construction-equipment firm Caterpillar (CAT) and power-plant equipment designer General Electric (GE).

But, two smaller companies, whose shares have recently climbed, include Chicago Bridge & Iron (CBI) and Clean Harbors (CLH). The two, which have market values of $3.8 billion and $2.5 billion, respectively, are Japan-rebuild plays that demand consideration. They have clean balance sheets and competent stewardship. Below is a closer look. Still, investors ought to do further research.

Chicago Bridge & Iron has been a top-performing stock in 2011, up 19% already. It is on the Conviction Buy List at Goldman Sachs, which has a $42 target on the stock. Construction and engineering equities fall into the category of late-cycle beneficiaries. Their businesses tend to thrive in maturing economic-growth cycles as demand for energy increases.

Given the economy's recent pickup and crude oil's spike, CB&I was already a favored momentum name. The recent turmoil in Japan offers another potential catalyst for the company's earnings in 2011 and 2012. Aside from Goldman, 14 other analysts rate CB&I "buy" and six rate it "hold." None rank the shares "sell."

CB&I's stock has a median price target of $42.07, implying 8% upside from current levels. The highest 12-month target comes from Citigroup, which expects the stock to advance 35% to $52.50. In contrast, Jefferies rates CB&I "hold", valuing the equity at $37.

On the basis of business fundamentals, there is reason for optimism. CB&I's adjusted fourth-quarter earnings advanced 55% to 63 cents, exceeding researchers' consensus forecast by 13%. Sales fell 8.7% to $948 million, missing consensus by 11%. CB&I's quarterly gross margin climbed from 14% to 15% and the operating margin expanded from 7.4% to 8.4%.

The balance sheet is outstanding relative to those of industrial peers. CB&I's cash balance rose 48% to $482 million in the latest quarter, for a quick ratio of 0.7, as debt fell 34% to $80 million, for a debt-to-equity ratio of just 0.1. Quarterly return on equity, at 19%, exceeded the industry average of 10% and the S&P 500 average of 13%. Return on assets, a measure of overall profitability, widened from 5.8% to 8.4%, signaling improved efficiency.

In spite of strong metrics, CB&I is a stock with sizable risks. Its capital-intensive business is leveraged to the economic growth cycle, so any decline or spike in worry pertaining to the economy could catalyze a rapid sell-off in its shares, given recent performance.

This threat is evident in the stock's beta value, a measure of market correlation, of 2.3. On up days, CB&I tends to magnify market gains and, on down days, it accentuates declines. In addition to analyst favor, the equity's valuation should mitigate this risk. CB&I's stock trades at a trailing earnings multiple of 18, a forward earnings multiple of 14 and a cash flow multiple of 13, discounts of 24%, 33% and 60% to construction and engineering industry averages.

CB&I's stock has managed to rise more than 9% so far in March in spite of unrest.

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