The Firms Poised To Cash In On The New U.S.
Infrastructure Revolution
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By: Martin Denholm
Managing Editor
Smart Profits Report |
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Published:
December 15, 2008
Pack your bags, folks -- "There's no
more Wall Street."
That's the damning verdict from Alan Greenberg, former CEO of
Bear Stearns. Speaking on Bloomberg's "Money and Politics" show,
Greenberg declared that the existing Wall Street investment
banking model is dead.
I'm not sure about death, but the broader U.S. economy is like a
2:00 AM drunk, continuing to stumble towards the end of a
mind-altering 2008, with little long-term relief in sight. Will
it ever find its way home again?
One of President-elect Barack Obama's most ambitious and
large-scale plans quite literally seeks to dig America out of
this mess -- and here's how you can profit, too. But you'd better
act fast -- some of Wall Street's big boys are already placing
their bets...
The Eisenhower Model: Part II
In five weeks, 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 about $37 to over $42 in the month of December, 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 20th to over almost $37
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).
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 and the stock
is performing well on the back of the company recently securing
two more contracts.
1. 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.
2. 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.
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 20th to a
current price around $39, 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 $10 and with a 0.34 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.
Best regards,
Martin Denholm
P.S. And for specific investment recommendations -- using
professional investment strategies that Wall Street's elite use
every day to generate wealth -- don't forget to check out the
work of my colleagues, Karim Rahemtulla, Marc Lichtenfeld, Jim
Stanton, and Lee Lowell in the Xcelerated Profits Report
newsletter. These guys are pros themselves, so they know exactly
how to do it.
Head this way for more details.
Martin Denholm
Managing Editor
Smart Profits Report
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