Rebuilding Kuwait Could Give These Stocks Muscle

No sooner was the gulf war over than the stocks of Fluor, Raytheon, and other giant U. S. contractors soared. Investors correctly anticipated that such companies would get big contracts to help rebuild Kuwait's ravaged oil fields and infrastructure. But the best plays in the postwar reconstruction boom may be smaller companies, where even relatively modest new orders could make a substantial difference in earnings.

One example is Blount, an engineering and construction company in Montgomery, Ala. Blount, which had $684 million in revenues last year, has won a $6 million contract from the U. S. Army Corps of Engineers to repair electrical infrastructure and public buildings in the emirate. Now at 11 3/8, its stock has risen from 7 7/8 on the American Stock Exchange since the ground war began. "Now that they have their foot in the door, there'll be lots more" work coming, says David Bartlett of First Hanover Securities.

As Kuwait rebuilds its oil industry, one beneficiary will be Varco International in Orange, Calif., a $131 million maker of drilling-rig equipment. Kuwaiti-owned Santa Fe International has awarded Varco a $10 million contract to supply drilling systems for land rigs. Ken Miller of Shearson Lehman Brothers thinks Kuwait's order could boost Varco's 1991 earnings 10%, to 70~ a share. That would bring its price-earnings ratio on the New York Stock Exchange down to 16, from 33 now.

Kuwait also has to rebuild its data banks. "All the information went up in smoke," says Prudential Securities' Byron Callan. That could mean an opportunity for Intergraph, a supplier of computer-aided design systems with long-standing ties to the Army Corps of Engineers. Prudential raised its 1991 Intergraph earnings estimate to $1.70 a share from $1.58, partly on the likelihood that the company will help map the damage to Kuwait's infrastructure. The NASDAQ-listed stock is trading at 24 1/4, with a p-e ratio of 18.

Some analysts think that just the prospect of Kuwaiti contracts is enough to rate stocks a buy. Prudential's Vishnu Swarup believes the earnings of two environmental-cleanup companies, International Technology and OHM, could grow 45% and 100% respectively if the jobs they expect come through. The stock of water-supply-equipment maker Ionics has shot up on speculation that it will help provide drinking water for the Kuwaitis. Investors clearly think there's a silver lining to the sad aftermath of war.

                        Stock price
                        Jan. 16   Mar. 25
      BLOUNT             7 7/8     11 3/8
      INTERGRAPH*       14 3/4     24 1/4
      IONICS*           29 5/8     40
      INTERNATIONAL      7 1/2     11
      *Contract not final