With capex budgets coming back, industrial services companies that are levered to global infrastructure buildout and have recurring revenue streams are going to surprise on the upside, says Hamzah Mazari, a senior analyst at Credit Suisse.
“If you listen to what a lot of the engineering and construction firms are saying, they’re saying that a lot of projects are going to come back on the drawing board [in 2011],” Mazari said. “You have new refineries going up in the Middle East. You have nuclear plants going up in China, and you also have capex budgets coming back.”
Mazari points to Flowserve (FLS) as one of his favorite picks for 2011. Flowserve benefits from the increasing demand for the equipment it manufactures, and as a potential acquisition target by a larger, multi-industry names like General Electric (GE).
“Most of the oil and gas companies are now spending money again, and so that’s going to result in the aftermarket piece of companies like Flowserve that make industrial pumps, valves and seals surprise people to the upside,” Mazari said, adding that GE bought Dresser and Wellstream (WSM.L), both of which play in similar end markets as Flowserve.