Jacobs Engineering Group Inc. provides professional, technical, and construction services. Its principal services comprise various aspects of engineering and construction, operations, and maintenance, as well as scientific and specialty consulting services. They serve companies and organizations including industrial, commercial, and government clients across multiple markets and geographies. Primary service markets include aerospace and defense, automotive and industrial, buildings, chemicals and polymers, consumer and forest products, energy, environmental programs, infrastructure, oil and gas, refining, technology, and pharmaceuticals and biotechnology. Jacobs Engineering has about 160 offices in 20 countries, with operations in North America, the United Kingdom, Europe, India, Australia, and Asia. JEC was founded in 1947 and is headquartered in Pasadena, California.

Due to its oil and gas industry exposure Jacobs earnings and share price peaked in 2007-2008. Shares hit highs of $99.60 and $103.30 in those years before toughing at $26 when the market melted down last November. The share price recovered to $54.70 early in 2009 before settling back to this morning’s price of $37.80.

Why did the price drop back again? Management lowered FY 2010 expectations. While there is no clear consensus Zacks now sees FY 2010 and FY 2011 at $2.38 and $2.75 while Value Line is looking for $2.60 and $2.69 respectively. Standard & Poors now carries estimates of $2.50 and $3.15.

Here are Jacob’s per share [split-adjusted] numbers from continuing operations as reported by Value Line:

Jacobs has steadily raised its sales per share and book value without the need for borrowing. As of Oct. 2, 2009 their total debt was $18.2 million against corporate cash of $1.033 billion. Management expects to use their strong balance sheet to finance some acquisitions which should add to future growth.

Even using the lowest estimates, JEC now trades for 16x this FY’s and 14x FY 2011’s earnings. Those are very low multiples for a high-quality issue while EPS are near a cyclical low point. Once earnings begin to pick up again it seems likely we’ll see a P/E expansion coupled with EPS of at least $3. A bounce back to even 18x normalized earnings would bring JEC back to the mid-$50’s.

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General American Investors and Adams Express Company

Closed-end mutual funds are similar to normal open-end mutual funds but offer some distinct advantages. Because they trade like ‘stocks’- selling at market prices rather than NAV - you can often buy them at significant discounts to their true asset values. Secondly, because they manage a fixed pool of dollars their portfolio managers are not subject to the destructive pressures of net cash inflows and withdrawal requests.

Retail investors generally pull money out of mutual funds when stocks are cheap forcing money managers to sell when they’d like to be buying. After big gains in the market public investors often plow money into mutual funds while chasing past performance. This forces open-end fund managers to either dilute the performance of older investors, by hoarding the newly deposited cash, or to buy more shares of current or new holdings at now much higher prices than before the rally.

Closed-end managers avoid these problems because their ‘money flow’ is limited to dividend or capital gains payments and/or occasional secondary or rights offerings. If a closed-end fund gets ‘hot’ demand for the shares will push the share price higher on the exchange where it trades as the fund’s NAV increases. Because the share price can be at a discount to NAV a favored closed-end fund can also see share price gains due to shrinking discounts or even premium to NAV pricing.

Discounts and premiums to NAV fluctuate in much the same way that normal company stocks sees changes in price to earnings ratios. Big gains can often be made by loading up when a company’s P/E is lower than normal. Similarly, better than typical profits can often be posted by buying closed-end funds when their discounts to NAV are larger than average based on that same fund’s history.

Here is a generic example of how that would work…

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http://www.facebook.com/l.php?u=http%253A%252F%252Fbit.ly%252F7EspXm&h=cff0aecf32f055d0c12e217686da0c60&ref=mf

NRG Energy, Inc. is a wholesale power generation company, primarily engaged in the ownership and operation of power generation facilities and the sale of energy, capacity and related products in the United States and internationally. The Company has a diverse portfolio of electric generation facilities in terms of geography, fuel type and dispatch levels. It seeks to maximize operating income through the efficient procurement and management of fuel supplies and maintenance services, and the sale of energy, capacity and ancillary services into attractive spot, intermediate and long-term markets.

At today’s close of $24.21 NRG shares are down significantly from their 2007 and 2008 highs of $47.20 and $45.80. Earnings can vary widely with competing energy pricing and the effects of hedging activities. There is not a clear view of what to expect. Here are the current EPS views (on continuing operations) for 2009 and 2010 from three different and respected sources…

Even at the low-end expectations NRG now trades for < 8.9x this year’s and under 11.7x next year’s earnings. If the high-end materializes the multiples would be 6.8x and 8.8x respectively.

Here are the more detailed per share numbers from continuing ops as reported by Value Line:

It is noteworthy that NRG shares changed hands as high as $29.70 - $47.20 in both 2006 and 2007 when earnings were well below both today’s trailing and next year’s expected EPS. Clearly there is big upside potential for buyers at the current quote.

Morningstar rates NRG at 4-stars (out of 5) and sees ‘fair value’ as $37.00 /share. Standard and Poors also assigns NRG 4-stars (out of 5) and carries a 12-month price target of $30 /share.

Here are two ways to play NRG using buy/writes for about 5 ½ and/or 24 ½ month time horizons.

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Ciber, Inc [NYSE:CBR] was up 17.78% today on more than four times normal volume.

This is a cheap stock and a good company. I wouldn’t be at all surprised if a take-over bid is being readied.

Bloomberg.com noted that Gold has risen to over $1100 /oz. (and had touched a new all-time high of $1226.56 recently). Despite 2009’s big run up, they pointed out that anyone who bought Gold at its $850 /oz. peak in January of 1980 would have had a better return in an interest bearing checking account.

So much for Gold as a long-term inflation hedge.