Just How Bad is America's Infrastructure, and How Can Investors Benefit from the New Infrastructure Bill?

Construction worker using a jackhammer for infrastructure improvements
Credit: Shutterstock

On Monday, President Biden signed into law a roughly $1 trillion infrastructure bill that is meant to bring the electrical grid into the modern era; expand access to broadband internet; upgrade airports, water, and transportation systems, and perhaps most important for those of us whose suspension has been victim to Jurassic-sized potholes, repair the country’s seriously aging roads and bridges. This not only is a welcome relief to Americans everywhere but also presents an opportunity for investors.

So, just how bad are things today? According to the American Society of Civil Engineers, America’s Infrastructure scored a C- in 2021. Here are some highlights of that report and grades for each category, along with how it is expected to be addressed in the infrastructure bill:

Airports (D+)

Current State: Prior to the pandemic, many of the country’s airports were facing capacity constraints, with terminal, gate, and ramp availability unable to meet the needs of a growing passenger base. The total time passengers were delayed rose from 65.8 million minutes in 2017 to 95.8 million minutes in 2019. The biggest area in need of investment at small, medium, and large airports is terminal buildings. Capital needed for terminal buildings was up to over $6.6 billion by 2019, investments for needed capacity improvements were at an estimated $3.1 to $4.1 billion, and reconstruction projects were at an estimated $16.9 billion.

The Plan: The bill has allocated $25 billion to improve runways, gates, taxiways, terminals, and aging air traffic control towers.

Bridges (C) and Roads (D)

Current State: There are more than 617,000 bridges across the U.S., and 42% of them are at least 50 years old and 7.5% of them are considered structurally deficient. U.S. highways and roads move around 72% of the nation’s goods around yet 43% are in “poor” or “mediocre” condition. The deteriorating roads force motorists to spend nearly $130 billion each year on extra vehicle repairs and operating costs. Over the past decade, the percent of vehicle miles traveled on “poor” conditions has risen from 15% to over 17%.

The Plan: The infrastructure bill is expected to provide around $110 billion towards repairing highways, bridges, and roads. According to that same report by the American Society of Civil Engineers, $125 billion is needed for the nation’s backlog of bridge repairs, $435 billion for the backlog in repairs to existing roads, and $105 billion for the backlog in system enhancements for a total backlog of $786 billion.

Broadband (NG)

Current State: As the pandemic forced millions of America’s kids to school-from-home, an estimated one in five lacked the high-speed internet connection needed to access lessons and educational materials. A full 65% of counties have average connection speeds that are below the FCC’s definition of broadband.

The Plan: The bill has $65 billion to improve internet service in rural areas for low-income families and tribal communities, with most of the funds accessible through grants to states.

Drinking-Water (C-), Wastewater (D+), and Stormwater (D)

Current State: There are 2.2 million miles of underground pipe to deliver safe water to millions of people, but the nation is experiencing a water main break every two minutes, and an estimated 6 billion gallons of treated water is lost each day in the U.S. The country’s over 16,000 wastewater treatment plants are functioning, on average at 81% of their design capacities, but 15% have reached or exceeded it. The prevalence of stormwater utilities is rising, with more than 40 states having at least one, but the impervious surfaces in cities and suburbs are also expanding, which is exacerbating urban flooding, resulting in $9 billion in damages annually. There is an estimated annual funding gap of $8 billion annually just to comply with current regulations.

The Plan: The infrastructure bill expends to spend $55 billion on water and wastewater infrastructure, which consists of $15 billion for the replacement of lead pipes and $10 billion to deal with water contamination from polyfluoroalkyl substances which were used to produce things such as Teflon, firefighting foam, and water-repellent clothing amongst many others.

Power Grid

Current State: The majority of the nation’s electrical grid is aging, with some components more than 100 years old, well past their 50-year life expectancy, and 70% of transmission and distribution (T&D) lines are well into the second half of their lifespans.

The Plan: The bill has earmarked $65 billion to improve the grid’s resiliency and reliability, as well as efforts to boost carbon capture technologies and more environmentally friendly electricity sources.

Public Transportation (D-)

Current State: About 45% of Americans have no access to public transit, and the existing system has a $176 billion backlog that is expected to grow to over $270 billion through 2029.

The Plan: The infrastructure bill is expected to allocation $39 billion to expand the current systems, improve accessibility for people with disabilities, and provide funds for state and local government to buy zero or low-emission vehicles for public transport.

Railways (B)

Current State: The nation’s rail networks are divided into two categories - freight and passenger. There are approximately 140,000 rail miles operated by freight’s Class I, II, and III railroads, and Amtrak operates over a 21,400-mile passenger network, 70% of which is owned by other railroads. Freight networks have largely been well maintained, investing on average over $260,000 per mile, but passenger rail doesn’t have the margins to allow for such reinvestment, which means it needs government subsidies. There is a backlog of $45.2 billion in maintenance and repairs for the nation’s passenger rails. Along our nation’s busiest passenger rail corridor, the Northeast Corridor, infrastructure-related issues caused 328,000 train-delay minutes, or the equivalent of roughly 700 Northeast Regional train trips from Boston, Massachusetts, to Washington, D.C.

The Plan: To reduce Amtrack’s maintenance backlog, the bill will provide $66 billion to improve the Northeast Corridor service and other routes. This will be the largest federal investment in passenger rail service since Amtrak was founded 50 years ago.

What this means for investors

From airport terminals to roads and bridges to water systems, all the projects will require building materials, which means companies such as Cleveland-Cliffs (CLF), which has evolved from a steel industry supplier into an integrated steelmaker that sets it up not possible benefit not only from selling more steel but also from selling its key competitors iron ore pellets and other steelmaking inputs. Nucor (NUE) also fits the bill here, a company that has managed to pay rising dividends over the past 48 years and is expected to report record revenue of around $36 billion this year. The company produces steel that can be used in water systems, bridges, and building construction.

When we think about roads and bridges, Vulcan Materials Company (VMC) comes to mind as it manufactures and supplies construction aggregate used in asphalt and concrete as well as sand and stone and related products.

There is also Tetra Tech (TTEK), which generates around 45% of its revenue from federal, state, and local spending and specializes in providing water-related services. Let’s not forget United Rentals (URI), which has construction at the core of its business, offering construction and industrial equipment. If we are talking equipment, obviously Caterpillar (CAT) stands to be a beneficiary from increased construction spending, and we cannot talk water systems without mentioning Core & Main (CNM), which has seen its shares on the rise for much of 2021.

The electrical grid system investments could benefit companies like Quanta Services (PWR), Dycom (DY), and EMCOR Group (EME). EMCOR also provides construction services for water and wastewater projects as well as HVAC capabilities which are increasingly important in airports. MasTec (MTZ) also provides infrastructure construction services for energy systems in addition to wireless, wireline communications, and satellite communications which means broadband infrastructure.

While we are at it, what would any construction project be without those portable little construction office buildings and storage containers? That is good news for WillScot Mobile Mini Holdings Corp (WSC).

The bill could help bring us closer to a country with smooth roads, fewer flight delays, cleaner and more efficient water systems, fewer power outages and electrical grids that incorporate more renewable energy sources, and robust internet access for those who prefer to live and work outside the more metropolitan areas. And investors can find plenty of opportunities along the way, be it in individual stocks like some of those mentioned above or in a handful of exchange-traded funds (ETFs). Those looking to get the biggest bang for their investing dollar in what we call “Rebuilding America” would be smart to focus on those that have meaningful exposure to the targeted spending areas discussed above as well as significant geographic revenue exposure to the U.S.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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