These Stocks Will Soar On Obama’s Infrastructure Plan
Dec 11th, 2008 | By Martin Denholm | Category: Stock Market InvestingObama’s infrastructure plan is still vague. But we know it will be big. And we know there will be great investment opportunities. Martin Denholm picks out the best stock plays in construction, engineering, utilities and raw materials.
This from Smart Profits Report:
Six weeks from today, Barack Obama will take the oath as 44th president of the United States.
Since his election victory, the more he’s said about “getting to work immediately” and having “no time to waste,” the more I think the inauguration ceremony will be a time-consuming inconvenience, distracting him from fixing America’s problems!
One key area in which he’s pledged to spend his way out of the mire is by tackling the country’s aging and rapidly deteriorating infrastructure. He plans to make the largest investment to repair and upgrade the country’s public works systems since Dwight Eisenhower spearheaded the nationwide interstate highway system in the 1950s.
In short, this means utility industries like electric and water will receive huge cash infusions. Roads and bridges will be repaired and rebuilt. Schools will be modernized, part of which will include improving Internet access to a nation that ranks 15th in the world in broadband adoption. Energy efficiency, particularly in government buildings, will be increased. The healthcare industry will make greater use of technology to streamline and computerize medical records to cut costs.
That’s the plan anyway. And Obama says it will create 2.5 million jobs by 2011. But we want profits. Read on to find out how you can grab some…
It’s The Economy, Stupid… Six Weeks Away From $500 Billion Rescue Plan
Obama’s economic brain trust is currently “busy working, crunching the numbers… to determine what the size and scope of the economic recovery plan needs to be. But it’s going to be substantial.”
Kinda vague right now, I know. But early estimates put the economic recovery bill at $500 billion. In terms of infrastructure upgrades, 5,000 road and bridge projects could get underway immediately after Obama puts his autograph on the bill.
Here are some investments that could revel in the building boom…
Brick By Brick… Bridge By Bridge
When the U.S. infrastructure sets to have a sweaty wad of cash lobbed in its direction, construction firms are lining up to grab a share of the spoils, as the need for equipment and raw materials rises.
Appropriately, we start in Obama’s home state of Illinois, which is also home to the world’s largest manufacturer of construction and mining equipment, engines, and industrial turbines. Founded in 1986 and based in Peoria, Caterpillar (NYSE:CAT) has shot up from $37 to over $43 over the past five trading days, as it feeds off the infrastructure buzz.
One of Caterpillar’s fellow Illinois-based construction equipment manufacturers, Deere & Company (NYSE:DE), could also be set to extend a share price boost that has seen the price surge from the upper $20s on November 20 to over $38 today.
If you want a more diversified way to play the industrial and construction sector, take a look at the ETF, the Industrial Select Sector SPDR (NYSE:XLI). ETF’s are a smarter investment choice in a rollercoaster market; our Guest Editorial on Good ETF Investments tells us why.
On the engineering front, head west and look no further than California’s Jacobs Engineering Group (NYSE:JEC), which is the largest publicly traded engineering firm in the U.S. The infrastructure love is spreading across the sector, as the stock shot up today on news that it has secured two more contracts…
- A five-year, $17.5 million contract from the Peninsula Corridor Joint Powers Board (JPB) that will see Jacobs serve SamTrans and the San Mateo County Transportation Authority (SMCTA) agencies to work on three programs. This includes project management, scheduling, budget management, and more.
- A contract from Pima County, Arizona to provide project management and construction inspection services for the Ina Road water reclamation project. Construction costs here will total about $200 million.
Jacobs pulls in a whopping $11 billion annually and employs more than 57,000 workers – a number that could grow under Obama’s bold plan.
And speaking of water, if you’re looking to cash in on this critical industry amid a surging global population, increasing pollution, and a depleting, finite amount of water resources, check out leading firm Watts Water Technologies Inc. (NYSE:WTS) or the sector ETF, PowerShares Water Resources (NYSE:PHO), which tracks the price and yield performance of the Palisades Water index.
Be sure to also pay a visit to our own free Smart Profits Report research section, where you can read much more about the water problems facing the world – and the vast profit potential that the industry holds. We’ve got two in-depth (pun intended) water reports up there. An earlier issue titled, The Water Industry analyzes how the economics of this increasingly scarce commodity are shaping our world.
Get Raw
On the raw materials side, several firms spring to mind as potential winners of the Obama Infrastructure Initiative (I just made that term up). And as Jim Cramer might say, they’re “best of breed” in their industries.
Cement: South of the border – in Garza Garcia, Mexico, to be exact – you can find Cemex (NYSE:CX), a world leader in producing, distributing, and selling cement. And when it comes to infrastructure rebuilding and repairs, you don’t get many more commodities more important than this one. Its market cap of almost $8 billion is evidence of this.
Steel: Talk about a liftoff. U.S. Steel Corp. (NYSE:X) shares have surged from the mid $20s on November 20 to a current price around $37, having enjoyed its biggest daily jump in almost 20 years on Monday.
Copper: Its 52-week high on May 21, 2008 was $127.24. Its price now sits around $20. Quite a slump for what is the largest publicly traded copper producer, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). You can blame the prolonged commodities sector slump for that, in addition to the stock market’s woes. But in an Obama-fueled infrastructure rebuilding rampage, I’m betting on a resurgence here.
Aluminum: Go large. The leader here is Alcoa Inc. (NYSE:AA). Like FCX, Alcoa has endured a rocky year. Having traded at a 52-week high of $44.77 in May, the stock market’s tank job has whipped this stock into submission. Shares are currently trading around $9.50 and with a 0.37 PEG ratio (Price/Earnings-to-Growth), the market thinks it’s ridiculously undervalued.
The bottom line here is that companies like these could all stand to profit from a huge ramp up in infrastructure spending. What’s more, they’re all solid, well-established, industry-leading firms in strong cash positions, doing business in areas where there are clear, critical needs. If you’re looking for outperformers, infrastructure stocks are set up well for 2009.
