There's a battle raging for the nation's soul, with half our
citizens staunchly defending a basic level of government support
for a range of social and public services, while the other half
sees government spending as mostly wasteful. Yet both sides agree
that our nation's infrastructure performs a vital role in the
smooth functioning of oureconomy , and it's only a matter of time
before this critical part of our economy merits greater attention
from policymakers.
And as
I noted in the first part
of this analysis of our nation's infrastructure, we've got a
considerable amount of catching up to do.
For investors, the questionwill focus on which companies stand
to benefit from the eventual, inevitable upturn in infrastructure
spending. Here are five stocks to watch...
|
1.
Power |
The recent devastation of Hurricane Sandy exposed the
vulnerability of our nation's electricity delivery system.
Many people were without power for days on end, and there is
a growing consensus that it will happen repeatedly as future
storms wreak havoc. The problem lies in the use of power
lines, which can easily topple in a strong windstorm. In
Europe, many countries have solved the problem by burying
power lines below ground. It's costly to dig trenches and
bury them, but the long-term savings really start to add up
when you consider the cost of serially-repaired power
lines.
Quanta Services (
PWR
)
, which is one of the nation's leading providers of utility
installation services, is likely to be a clear beneficiary of
the trend toward buried power lines. Two-thirds of the
company's sales come from electric utility contracts, and the
remainder comes from natural gas pipeline and other power
transmission systems. Beyond the impact of major storms on
the nation's power rigid, there's an ageissue . Rising power
demands are starting to strain the national grid, so power
companies have already begun to plan for long-term network
upgrades and expansions. So this isn't just a play on Uncle
Sam's spending, but the private sector as well.
|
|
2.
Roads |
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Consider
Sterling Construction (Nasdaq: STRL)
to be the deep value play among infrastructureinvestments . A
recent multi-year under-investment phase has dampened results
for this road builder, pushingshares down from $22 five years
ago to a recent $9. The value angle: Shares now trade below
tangiblebook value , even as book value is set to rise in
2013 asearnings per share (EPS) rebound to 30 cents. By
mid-decade, rising infrastructure spending could pushEPS
north of $1 a share, which is what the company earned in 2005
through 2010. |
|
3.
Ports |
Our nation's ports and key rivers are the lifeline of trade,
and recent droughts, the advent of ever-larger "Panama class"
ships and other factors are leading to a steadyinvestment
that should extend for a number of years. Analysts at D.A.
Davidson "expect substantial growth in 2013" for
Great Lakes Dredge & Dock Corp. (Nasdaq:
GLDD)
, noting that projectsbacklog surged 38% in the quarter ended
September to $506 million. They also noted that "with
additional award opportunities over the near-term including
beach restoration work and port deepening projects in the
U.S., bookings should continue to increase." |
|
4.
Bridges |
This company is a jack-of-all-trades, from building highways
and mass-transit systems, to bridges and wastewater treatment
plants.
Tutor Perini (
TPC
)
has plenty to keep it busy, with a current $5.6 billion in
orders in backlog. On anearnings basis, this is a very
inexpensive stock, trading at around seven times trailing
profits, and less than six times projected 2013 EPS of around
$2.40. As an added kicker, shares trade at just 60% of the
stated $23 book value. |
|
5. Water
|
Thisexchange-traded fund (ETF) is the savviest way to play
our nation's water woes. The
First Trust ISE WaterIndex Fund (
FIW
)
owns a range of water treatment or conservation
companies such as desalination firm
Energy Recovery (Nasdaq: ERII)
, irrigation equipment provider
Lindsay Corp. (
LNN
)
, and water-filtration equipment firm
Mueller Water (
MWA
)
. Thefund is up roughly 20% this year, and gains should
continue as cities upgrade their aging water systems and
farmers invest in methods to use scarce water
resources more efficiently. |
Risks to Consider:
The government has under-invested in infrastructure in recent
years, and that could continue to be the case in 2013 if Washington
can't develop a permanent fix for its budget woes.
Action to Take -->
These infrastructure stocks have been out of vogue in recent years
thanks to government cutbacks. But as the cycle of under-investment
is extended, the stage is increasingly set for an eventual sharp
snapback in spending as long-neglected aspects of the
infrastructure finally get their due. Wise investors should have
these stocks on their watch list as we get into the new
year.