Washington Group International (NYSE: WNG) - $66.42

Washington Group International (NYSE: WNG) is my latest company of interest. Although I have yet to take a real position (it is in my Marketocracy fund), this appears to be a good one. I thought a good entry point was around $59, where I first purchased in Marketocracy. However, it is now at $66.42 and so that is where I will have to say I 'found' it.

Before getting in to WNG, this is just to show you the opportunities out there. There just never seems to be enough capital or money. Technically speaking, I should maybe back out of some of my losers, like INFT, and switch the money into WNG, but not wise. To quote Warren Buffet, "buy companies, don't rent stocks." INFT, for instance, is down 12% or so since my first mention, but the fundamentals for me buying INFT have not changed - if anything, they have improved. Sure, at some point, you have to move on, but if the fundamental reason why you have bought the company has not changed, there is no reason to sell. Certainly, you may miss out on some opportunity, but in the end, it is more important to stick to your strategy, especially if there is no material reason why the strategy should have changed. For instance, if INFT starts burning through cash, then that is a material reason to change my strategy, but that is currently not the case.

Anyway, on to WNG.

WNG recently moved to the NYSE from the NASDAQ, where it traded under the symbol WGII.

I was first introduced to this company by Jeffrey Gendell. He recently reported going over 5% in WNG via an SEC filing. Like all of his investments, I took a close look and initially, the picture was solid, but not making me jump.

WNG is in the engineering, construction, and consulting/management services to many private companies and business organizations worldwide. They will do just about anything, but seem to have a preference for servicing power plants, manufacturing plants, etc. That is the simplistic overview, but for instance, they don't build office buildings - they are typically involved in projects for facilities that are in some of the more environmentally unsavory areas.

Financially, things look good. The company has no long term debt, plenty of cash ($9+ per share), and is trading as less than 1x sales. WNG, however, is not cheap trading at 2.4x book value and 24x earnings. Originally, these ratios somewhat turned me off to WNG, but then I saw an announcement that changed my take on it.

WNG recently announced a $550M contract with Allegheny Power Plant for a clean-air retrofitting project. Basically, the project will reduce sulfur-dioxide emissions by 90% when the project is complete. Not only is this project 12% of WNG's trailing 12 months revenue, but it is also a significant project. WNG seems to specialize in such environmental retrofitting and remediation projects.

I believe that worldwide and in the USA, there is a significant need for such services - and more importantly, there may be regulations in place forcing companies to clean up their acts. A great example are the cement kilns owned by Ash Grove Cement (Pink Sheets: ASHG and one of my holdings). The mercury emissions from these plants are always sky high and exceeding mandated levels. Ash Grove typically just pays a fine, but the level of emissions is starting to cause a problem as it is a frequent topic in the news. Much of the emission levels are just a necessary by-product of production, but the time may come where regulatory pressure gets into place to require plants (chemical, power, manufacturing, etc.) to address the issue.

Obviously, there are other companies that can provide the same services that WNG does, though WNG is one of the larger and more established ones around. I need to do more research to see exactly how much money will be spent on similar projects in the 30 countries WNG serves each year over the next several years, but my guess is that WNGs share of these projects will be 50%-100% more than there current $3.5B in annual revenues. WNG also seems to agree as they have been repurchasing stock quite actively. WNG bought back $66M of stock during 2006 - about 3.5% of their current market capitalization.

WNG stock is trading near its 52-week and all-time high, which leads to some skepticism, but historically, they have produced 10%+ returns for their shareholders each year. Additionally, I believe that over the coming 12-24 months, projects like the one awarded to WNG at Allegheny will become more commonplace and provide significant upside to WNG's revenue and total return.

My 12-month target price for WNG is $80-$85 per share and I believe the stock trades at over $100 within the next 24 months.