Foster Wheeler (FWLT – Nasdaq)

Dear Bottarelli Research Member,

We picked up some very inflationary data this week, which I’ve spoken about in previous small-cap bulletins. This tells me that it’s time to start shifting dollars into other currencies like the Swiss Franc, Brazil’s Real, and the Aussie dollar. It also supports adding exposure in gold, silver, and platinum.

As the Fed meets in Jackson Hole, I personally think they have to cut rates again. That’s the only way to get our economy going. Until the housing mess comes to an end (which will tremendously help the banking sector), we must remain on our toes – looking only for the very best opportunities.

Last week, we took advantage of incredible weakness in the energy sector to add shares of XTO Energy (XTO – NYSE) for remarkable prices. This pick has already returned 14% in one week.

This week, we’ll continue this strategy by adding another larger-cap stock that has experienced quite a haircut. Looking at their backlog and forward earnings projections, this is another gem that will glisten as their global business model is set for strong and consistent growth for years to come.

They’re one of the world’s most prestigious engineering and construction companies, involved in designing leading-edge infrastructure facilities for the oil and gas, gas-to-liquids, refining, chemicals, petrochemicals, pharmaceuticals, biotechnology, environmental, and power industries.

What particularly attracted me to this company was their expertise in “heavy” crude oil, liquid natural gas (LNG), and power generation facilities. They also own their own cutting edge technology for coking, solvent de-asphalting, and hydrogen processing – further strengthening their footprint with major companies across the globe.

As the world’s population expands, basic needs like power, food, housing, and health care will continue experiencing unprecedented demand. Since this week’s pick is positively impacted in each of these sector groups, today’s investment thesis is really quite simple.

Over the last three months, the market weakness has pushed this stock down to its yearly lows. Looking at their current valuations, this company now trades at a P/E of 13, which I consider grossly undervalued. After all, they just reported record Q2 net income for 2008 of $160.8 million ($1.11 per diluted share) compared with $71.9 million ($0.50 per diluted share) in the second quarter of 2007.

I have been carefully monitoring this stock for many months, and not a single week has gone by where they weren’t awarded new contracts, started new J/V deals, or completed a project ahead of schedule. They are making money (lots of it!), and as their natural gas build-out kicks into high gear, the demand for power on every continent will continue driving powerful earnings.

MAKE NO MISTAKE: Taking advantage of this misunderstood sell-off on this high-quality gem will handsomely reward us.

Therefore, we’ll continue our strategy from last week and add yet another powerful stock to our small-cap ledger for a bargain basement price. I’m confident that having stocks of this magnitude within our portfolio will translate into tremendous profits.

So on that note, let’s welcome our newest pick with open arms: Foster Wheeler (FWLT – NASDAQ).

Over the next six months, a lot of panicked investors will ask themselves “why the heck did I sell FWLT?” Right before our eyes, company insiders have started buying the stock, and now we’re going to join them. FWLT is a buy anywhere under $53.00. Get ready for the next leg up!

UPDATES

Suntech Power Holdings (STP – NYSE): They reported blockbuster earnings yet again. Net revenues for the second quarter of 2008 came in at $480.2 million, an increase of 51.3% from the corresponding period in 2007. They also reported a 73% increase in year-over-year revenues. Their investment in long-term silicon supply is really paying off, as they have now secured 900MW of attractively priced silicon for 2009. This is all fantastic news, which should push STP into the $50.00 range very soon. Therefore, let’s take 1/4 of our profits off the table now! Lock in gains on 1/4 of your position, hold the remainder for more upside.

Ascent Solar Technologies (ASTI – NASDAQ): Our solar roofing play has yet to show its muscle, but that’s all about to change. You see, every builder I know of will soon jump on board this building wave of the future. Make no mistake about this one – they’ll change the way buildings are constructed forever. They expect to commence full-scale production on a 1.5MW manufacturing line by the end of 2008, so I urge you to take full advantage of this upcoming trend and accumulate ASTI. Buy.

Potash North Resource (PTNHF): While down from our original alert, this company remains one of the top junior potash plays your money can buy. Don’t forget the importance of fertilizer. This little gem is in its drilling phase with a very close proximity to both Mosaic and Potash Corporation of Saskatchewan. As they drill and prove out what they are sitting on, you better believe that POT, MOS, and even AGU are watching very closely. I would use this weakness to accumulate. Buy.

Potash One (KCLOF): The same story applies here as well. We have already taken 75% profits on this pick earlier in the year, and now that KCLOF as come back down, I would once again be a buyer at these levels. When the next potash super-cycle kicks in, you’ll want to be on board! Buy.

EMCORE Corporation (EMKR – NASDAQ): Our concentrated photovoltaics (CPV) solar stock has been spoken about rather well lately. It seems that General Electric (GE – NYSE) might be looking to acquire their solar cell technology. This is only a rumor right now, but the fact of the matter is that GE and EMKR have done business in the past. You see, GE bought out their LED business back in 2006. Even more interesting, I found that GE also owns around 400,000 shares of EMKR, so an acquisition makes a lot of sense. GE sure has deep enough pockets to make it happen. You already know that EMKR makes solar cells cheaper and more efficient than SunPower (by about 50%). And considering that STP reported blockbuster numbers this week, this could be an ideal time to add to your EMKR position. If GE makes a move, it’s going to send the price of EMKR skyrocketing. Buy.

National Coal Corp. (NCOC – NASDAQ): Taking advantage of the panic selling looks to be paying off. Although we are not yet back to our original alert price, I still feel confident that profits are just around the corner. NCOC just reported that their revenues increased 67% to $31.6 million (from $18.9 million during the year-ago quarter). Tons of coal sold also increased 23% to 458,245 tons, up from 372,341 tons during the year-ago quarter. On top of that, one of their key pieces of equipment (which was down for 5 months) has now been repaired, allowing them to open up some of those new mines that we spoke about in our original buy alert. I expect very strong numbers to come out of NCOC in Q3 and Q4, so continue using any weakness as a buying opportunity. Buy.

NOTE: The same thinking applies to our other small-cap coal stock, International Coal Group (ICO – NYSE). From a chart perspective, it looks like the next up-leg is right around the corner. Hold.

Companhia Vale do Rio Doce Vale (RIO – NYSE): This is one of the most grossly oversold stocks that I watch. I cannot find any rhyme nor reason for the severe sell-off, but I can tell you this: Over the next 6 months, I fully expect to see shares of RIO come back to life. Therefore, using this weakness to pick them up now will be in your best interest. They are a global iron ore powerhouse, and demand is not going away anytime soon. Buy.

Until next week, remember to give thanks for the mass abundance in your life.

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

- Warren Buffett

As Mark mentioned above, we had a very nicely timed entry on XTO Energy (XTO – NYSE) last week – handing us a quick and easy 14% return. Therefore, we’ll continue this successful strategy this week by adding shares of Foster Wheeler (FWLT – NASDAQ).

As a baseline description, Foster Wheeler provides global construction and engineering services to the oil and gas, chemical and petrochemical, pharmaceutical, environmental, power generation, and power plant sectors.

Their operations are broken down into two segments, noted below…

Global Engineering and Construction Group: This segment designs, engineers, and constructs infrastructure facilities in sectors such as oil and gas processing, natural gas liquefaction, oil refining, chemical, petrochemical, pharmaceutical, biotechnology, and healthcare.

Global Power Group: This segment manufactures and erects steam-generating and auxiliary equipment for electric power generating stations. They also service existing infrastructure, which entails plant upgrading and life extension.

In short, FWLT is a pure play on global infrastructure demand, and the case for explosive growth is quite simple. Merrill Lynch, for example, just doubled their forecasts for emerging-market infrastructure spending. They expect spending of $2.25 trillion (yes, with a “T”) over the next three years, which is up from the $1.25 trillion they originally forecasted. That alone is a powerful statistic that makes a strong case for FWLT – and you can already see these orders coming in now.

For example, Foster Wheeler booked $538 million in new orders during the most recent quarter, bringing its backlog of work to $1.8 billion at the end of June. That’s up 26% from a year earlier.

Their power group also added $191 million in new orders, bringing their total backlog up to $1.5 billion. That’s up 10% from a year earlier.

When I look at these figures, I don’t see any evidence that a global recession is hurting FWLT’s business operations. But this fear of a global recession is the reason shares of FWLT have sold off recently – opening up a tremendous opportunity for savvy investors like us. Get this: If you add up FWLT’s current backlog, you’ll see that their current backlog is now larger than their total market cap. And this tremendous backlog will remain in place as long as oil stays above $70.00 per barrel. In other words, the threat of order cancellations is very, very small.

Furthermore, FWLT’s current PEG (PE to Growth Rate) stands at 0.375. As a baseline figure, anything below 1 is considered cheap for growth companies. This tells you that shares of FWLT are ridiculously undervalued. In fact, just look at the chart below. Does this look like a company with a 40% growth rate? Absolutely not!

The way I see it, a company like FWLT is being sold off on fears of a global recession. But when I look at FWLT’s numbers, I don’t conclude that a global recession will negatively impact their bottom line. In my view, FWLT is positioned to capitalize on a global mega-trend that’ll be in place long after the current bear market comes and goes, and that’s why today is such a strong buying opportunity.

Consider this…

In one of the most under-reported stories of the year, Saudi Arabia’s national oil company (Saudi Aramco) recently announced that they plan to increase their refining capacity by three quarters within the next five years.

Saudi Aramco currently sits on a quarter of the world’s proven reserves of crude. As a company, they dwarf top oil names like ExxonMobil and PetroChina. And although they don’t report their financials, it is very likely that Saudi Aramco earns $1 billion per day in revenue.

They now plan to allocate upwards of $70 billion for new refining and petrochemical ventures. And since Saudi Aramco has successfully worked with Foster Wheeler in the past, you better believe that their new refineries will drive an obscene amount of business FWLT’s way. The way I see it, FWLT has secured a client in Saudi Aramco where money is no object.

That’s why I feel any near-term price drops in FWLT shares offer us a wonderful buying opportunity.

REMEMBER: The potential deals with Saudi Aramco only account for one client. Aside from Saudi Arabia, China’s infrastructure growth remains phenomenal. And then you have every other developing nation – all of which continue towards rapid urbanization. All of this points to infrastructure build-outs for housing, electricity, water, sewage, and transportation – all leading directly to business for FWLT. After all, you can’t have an infrastructure project without an engineering and construction firm – and FWLT is one of the world’s best.

Furthermore, Foster Wheeler also produces coal fluid boilers which remove 95% of the sulfur from coal. And they also have exposure to the liquefied natural gas market, which is expected to grow from $8.7 billion to $25.4 billion between now and 2011.

With quarterly revenue growth at 55.90%, $1.16 billion in cash, and 81.40% of shares held by institutions, the stock looks like a very strong buy on any dips. Therefore, let’s add shares of FWLT to our small-cap ledger now!

PLAY: Buy shares of Foster Wheeler (FWLT – NASDAQ) at or under $53.00, good for the week.

Sincerely,