A $150 Stock That Could Be Headed to $250

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Target prices — outlandish predictions for individual stocks — are among Wall Street’s biggest charades.

Designed to provide reasonable guidance of a stock’s future price potential, the idea of such forecasts, which investors hunger for, makes a great deal of sense. The one problem is, they’re often heavily inflated and little more than pipe dreams.

Judging from their forecasting prowess in this column, a couple of crystal-ball gazing pros may be notable exceptions to the rule and worth serious attention.

One is savvy London money manager Marcus Raab, who has a bold new prediction. If he’s on the money — and that’s always a big if — a stock currently selling at $152.40 could be on its way to the $250 mark.

The reference here is to Fluor Corp., the country’s largest publicly owned engineering and construction firm, whose stock has been on fire this year.

This buoyant forecast arises out of an e-mail I received earlier this year from Barbara Schrimm, who wrote that she had inherited 4,400 shares of Fluor in 2005. They were originally bought at around $50.30 a share and had since risen to $101.96. Her accompanying question at the time: “Is it time to sell?”

Because I’m not in the advice business, I presented the views of a couple of pros, both of whom strongly felt she should not only not sell, but, in fact, might even consider buying more. They were dead on.

Luckily, I picked the right people. The evidence is that the stock subsequently ballooned roughly 70% to an all-time high of $172.15.

One of those forecasters was Mr. Raab, a principal of London-based Raab Associates, who told me at the time, “You’re looking at a $100 stock on the way to $200. You have a worldwide infrastructure building boom, especially in Asia, that will continue for some time and Fluor will be a major beneficiary,” he said.

Our other pro who made the terrific call on Fluor was Gregory Dorsey, editor of the New York-based Emerging Investments newsletter. He envisioned sizable earnings growth and predicted a three-year sprint in the stock to $140.

About a week ago, I got a second e-mail from Ms. Schrimm, who wrote, “A great call, but what do I do now? Please follow up, don’t leave me in the lurch.”

Who better to check in with for an update than the very same pros who made that super Fluor call earlier this year?

An active player in the energy business, Fluor is a leader in international design, engineering, and construction. It posted sales last year of $36.8 billion. So far this year, its stock is on a tear, having more than doubled from its 2006 close of $73.51.

Mr. Raab now believes he was too conservative. Given the stock’s rampage, he has upgraded his price target. “Trading at around 50 times earnings, the stock is pricey, but given the terrific growth prospects and the momentum, I think you could see $250 by mid-2009. As I told you before, the company is in the right place at the right time.”

Mr. Dorsey echoes Mr. Raab’s enthusiasm. His assessment of the company: “Even better things to come.” Originally, he had thought Fluor could earn $4 a share in 2007 and $5 a share in 2008. But given its growing backlog of cash — $26 billion at the end of the second quarter and the prospect of more than $35 billion by year-end — he says he thinks Fluor will generate even bigger numbers. So as of now, he’s looking for profits of close to $6 a share in 2008 and about $8 a share in 2009. Longer term, he thinks annual earnings gains of 20% appear quite doable.

What about its hefty price-to-earnings ratio? Conceding that the stock looks a bit pricey on trailing earnings, Mr. Dorsey is quick to note that Fluor is still trading at only a modest premium to its earnings growth rate. Noting that the stock has blown through his original price target in only six months, he says he would not be inclined to sell it. His bottom-line reasoning: “Fluor is capable of advancing much further in the next few years.”

Where such a projected advance might take the stock is anybody’s guess, but if Mr. Raab is on the money again, investors have a clear shot at buying a potential $250 stock on the cheap.

dandordan@aol.com


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