How to Profit from the $2 Trillion Crisis (Part 2)
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...
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
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.
|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.|
|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."|
|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.|
|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.