I’ve known this was a sleeping bull for a long time.
But, until recently, the stock prices were simply too high to talk about investing in infrastructure stocks as a growth catalyst.
Now, the rules have been rewritten, the stocks have gotten a haircut, and infrastructure is being talked about as a possible economic savior.
Case and point is an interview given yesterday by House Majority Leader Steny Hoyer.
When asked what should be included in a proposed second economic stimulus package, Hoyer quickly rattled off four things on his shortlist:
unemployment insurance
food stamps
health care/Medicaid
infrastructure
He was clearly most excited about the infrastructure angle, as that was the only one he elaborated on. Here’s what else he had to say about it (Hoyer’s remarks in italics):
Infrastructure investment obviously creates jobs here in America. We are looking at projects that dirt can be dug in 90 days.
Give me an example of a building project that can start within 90 days.
Give you an example? We’ve got highway construction that is on hold in the state of Maryland because of a lack of funds. That’s true also of some sewer systems. I was down in Louisville two or three weeks ago talking to the mayor and to the head of the sanitary commission down there. They have projects they can get underway immediately, fixing some of their aging sewer and water systems. So those are examples of things that will spur the economy and invest in the things that we have to invest in to make sure that our economy can grow and be successful.
How big would an infrastructure program, say, have to be to make a real difference when we’re finding out that $700 billion wasn’t nearly enough to save the economy?
With respect to how big the stimulus has to be, certainly it needs to be a substantial sum. We were talking about $100 billion last week, unfortunately the Senate republicans objected to that. We think that was a mistake. President-elect Obama has now said he wants a stimulus package ready for him by the time he is sworn in to office; I expect that we will do that.
This is clearly candid information. The second-highest ranking member in the House basically flat-out said the government is going to toss money at infrastructure projects in an effort to immediately spur spending and create jobs.
This means a flurry of activity is about to swell around some well-positioned infrastructure stocks.
Infrastructure Stocks: Battered Bellwethers
So what, exactly, would a second stimulus look like?
I think Barron’s hit it squarely in an article last week:
While it’s still too early to know what form a plan like this would take — much less its price tag — it would probably focus on infrastructure projects across the country, both building new bridges, roads and municipal systems and repairing outdated ones. In the process, the plan could potentially create thousands of jobs and at least kick-start the economy until other initiatives took hold.
Plus, some of the infrastructure big boys have been cut in half over the past few months, leaving the door open to scoop up some shares on the cheap before Obama unleashes his flood of infrastructure spending.
To get an idea of how to capitalize on this opportunity, you first must know what is included under the broad umbrella of ‘infrastructure stocks.’ I’d put the following sectors in that category:
construction and engineering firms
suppliers of concrete, steel, heavy equipment
water infrastructure companies
transmission companies/electric utilities and
green infrastructure companies
I’d be looking for companies that dabble in more than one of those sectors, and have a successful track record of doing so.
Here’s a list of the infrastructure stocks that I like, and that have sold-off dramatically over the past few months:
ABB Ltd. (NYSE: ABB)
Fluor (NYSE: FLR)
Jacobs Engineering (NYSE: JEC)
American Superconductor (NASDAQ: AMSC)
Foster Wheeler (NASDAQ: FWLT)
The Shaw Group (NYSE: SGR)
Now take a look at a chart of those guys for the last three months.
It’s easy to see how these stocks, despite their blue chip history, have been caught up in recent rampant selling.
But it appears as though they’ve found the bottom, and have started their ascent. I don’t think it’s a coincidence they started to rise shortly after the election, and upon talks of a second stimulus that will include infrastructure spending.
Now’s the time to get in, before they head back to the levels of earlier this year.
And if it’s not individual companies you’re after, here’s list of infrastructure ETFs and mutual funds:
Kensington Global Infrastructure (NASDAQ: KGIAX)
Kinetics Water Infrastructure (NASDAQ: KWINX)
iShares S&P Global Infrastructure Fund (NYSE: IGF)
First Trust ISE Global Engineering & Construction (NYSE: FLM)
SPDR FTSE/Macquarie Global Infrastructure 100 ETF (NYSE: GII)
A chart of those five looks similar to the previous chart of individual companies.
Infrastructure Stocks: The Bottom Line
Consider this: a 2005 study by the American Society for Civil Engineers (ASCE) concluded with a report card for all the U.S.’s infrastructure systems.
On a cumulative basis, America’s infrastructure G.P.A was a D.
The conclusion?
ASCE estimates that $1.6 trillion is needed over a five-year period to bring the nation’s infrastructure to a good condition. Establishing a long-term development and maintenance plan must become a national priority. But in the short term, small steps can be taken by the 110th Congress, as well as state legislatures and local communities, to improve our nation’s failing infrastructure.
So getting in some solid infrastructure stocks can now could provide a short-term boost with even better long-term prospects.
Call it like you see it,
Nick
PS. Renewable energy and associated infrastructure are also on the docket to receive government funding. I have new report that outlines the current wind investment opportunities, including turbine manufacturers and electric infrastructure plays. Check it out. These companies will be soaring right along with the broader infrastructure sector.
