Then the economic downturn of 2001 took this Swiss-Swedish power and infrastructure company to the brink of bankruptcy. In the years following, ABB posted losses of more than $2 billion thanks to restructuring charges and asbestos litigation in the United States. Barnevik was pushed out of the CEO post, but ABB itself recovered after several years of heavy restructuring and thousands of job cuts.
Today, ABB has turned the corner in profitability. It recently announced earnings of $735 million for 2005, compared with losses of $35 million in the previous year. Its profitability has skyrocketed, with earnings before interest and taxes (EBIT) rising a whopping 108%.
ABB also halved its debt to $500 million, allowing it to pay its first dividend in five years. As a result, ABB expects its credit rating to return to investment grade within months. Finally, ABB is also on the verge of settling a nagging (and expensive) asbestos suit, with a U.S. judge expected to approve a $1.43 billion trust fund to settle claims against a U.S. subsidiary by the end of March.
Add the fact that ABB is set to benefit from the upturn in the global infrastructure cycle, and you’ve got the makings of a tremendous Global Bull Market Alert winner. Engineering and construction cycles, once they get going, are licenses to print money. Asia is the big story for ABB today, with plenty of orders for new plants in China and India. But planned upgrades in the developed world, both the U.S. and Europe, will mark another phase of growth in 2007.
Let’s buy ABB (ABB) at market today, with a stop price of $10.20. If you want to play this combined turnaround and growth story for bigger upside, buy the September $12.50 call options (ABBIV.X).
PORTFOLIO UPDATE
To make room for ABB, sell your shares in Korea’s Worri Financial Group (WF). The fundamental story with WF remains as strong as it ever was, but as fast-moving Global Bull Market Alert traders, we need to make room for picks with the greatest short-term upside potential.
Last week, America Movil (AMX) hit record highs, and is approaching our price target of $38. The options we recommended two weeks ago are already up over 72%. Go ahead and sell half of your options to lock in quick profits. Move your stop to $30.90.
Rio Tinto (RTP) announced February 22nd that it is paying out a dividend of $6.06 per share on April 7th. That’s a quick payout of 3.2% in income for the short two weeks you’ve held the stock. Move your stop up to $176.50.
Also, move your stops on the following holdings: Unibanco (UBB) to $74.50 and Gold Fields Inc (GFI) to $19.95. You’ve made over 40% on options in both these holdings in the past three weeks. Move your stop on Southern Copper (PCU) up to $65.50, and China Petroleum and Chemical (SNP) up to $55.25.
