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MasTec (MTZ) engages in the building, installation, maintenance, and upgrade of communications and utility infrastructure in the United States. The company operates three business sectors: Utilities, which accounted for 38% of 2009 revenues, and includes wind farms and other renewable energy, natural gas gathering systems, and pipeline infrastructure; Communications (58%), which includes telephone, satellite and cable TV; and Government (4%), which consists of military-based utilities. The company acquired Wanzek Construction in December, 2008 and Precision Pipeline in November, 2009.

MasTec operates in the Heavy Construction Industry, a group of companies that provide a wide range of engineering, planning, design, consulting, construction, and construction management services for governments and the private sector. The prospects for this industry are bright, considering the recent turnaround it has made after being in the doldrums during 2008 and 2009, and the early part of 2010. Things have changed, however, and the recently completed third quarter showed vast improvement in profitability. Indeed, 2011 could be a bumper year for the industry, as governments continue to spend on infrastructure-related projects in order to create jobs, and corporations begin to bolster capital expenditures.

MasTec had an impressive third quarter, as indicated by the $0.35-a-share profit it recorded; a full 30% improvement from the year-earlier period. Indeed, the stock’s price has soared over 42% so far this quarter, prompting Value Line to raise its rankings on the stock to Above Average (2). Value Line analyst James Sullivan “expects the company to continue registering substantial year-over-year profit growth in 2011.” Mr. Sullivan reported that the bulk of the benefits to be derived from the huge Ruby Pipeline project will be realized in 2011, as the third-quarter performance was a result of existing business, and not new projects, which should “augur well for sustainability of the recent growth trend.”

Looking further out, MasTec’s prospects are rosy. The stock is expected to climb to $30 a share by 2013-2015 from a recent $14.35 price as the company transforms itself from a telecommunications installer to a diversified domestic construction enterprise. The company is financially sound, with approximately $400 million in long-term debt, which includes $225 million of convertible notes due 2014. Still, it does not pay any dividends on its common stock. And that’s where the convertible notes come in.

MasTec has two outstanding convertible debt issues. The 4.25% notes mature December 15, 2014, while the 4% notes mature on June 15, 2014. Both generate yields in excess of 3% and are not callable. The 4% notes, which are included on our Especially Recommended list, have a 3.4% current yield advantage over the common stock, and are poised to share in as much as 50% of any gain in the common, but only 34% of the loss if the stock should decline. The convertible notes offer investors a safer ride with this construction company because of their lower volatility. However, should the common approach the $30-a-share mark over the next three to five years, holders, who are already in the money, could realize a bigger profit. Note, however, that the company is trying to exchange these convertible notes for notes with a physical or cash settlement option.