Even when an industry is down, it always pays to know about the companies within it. The way a company responds to the need for change can tell you a lot about the quality of the management and the nature of the business.
Engineering and construction companies are having to shift to other sectors to make up for the loss of extra work coming from mining. Mining contract work is simply returning to the moderated level of before the mining surge occurred.
Here are two engineering stocks that have great track records for earnings. See how they are adjusting.
Infrastructure and environmental services company Cardno Limited (ASX: CDD) gets about 53% of its revenue from the Americas. Over the first half of FY2014 that business segment saw a rise in revenue and earnings while the Australian and New Zealand segment was down. The geographical diversification helped balance out the effects of the mining pullback
Earnings have risen annually for the past nine years, although the growth rate has moderated recently. The company has been active in acquisitions. In October last year it bought a Houston, Texas-based structural engineering company. In March, another acquisition was announced for a specialist engineering consulting company in Houston that provides services to major oil and gas companies.
It is building up its presence in the burgeoning oil and gas industry within a region covering the Gulf of Mexico as well as the resource rich shale oil regions in Texas. This is a good example of growing into a much needed service space when the opportunity arises.
Engineering company Monadelphous Group Limited (ASX: MND) operates mostly in Australia, and services a number of different industries without being too reliant on any one of them. To offset the reduction in mining related work caused by the recent mining pullback, it is winning more contract work in the oil and gas industry.
It has three new contracts in QLD for constructing gas processing facilities worth about $250 million. Last month it won a $680 million construction contract for the Ichthys LNG project going ahead in Darwin.
While the market is still down on the engineering and construction industry, it is working away. It has raised revenue and earnings every year for the past nine years.
Foolish takeaway
If you are unsure of the companies' progress, then follow them through a watchlist. If you feel comfortable with them, take staged positions as things improve.
