Typically, I'm an optimistic, glass is half full kind of guy. I have to be. I'm an investment guy. Doesn't mean I'm not realistic, though.
In September 2011, Stifel Nicolaus macro strategist Barry Bannister published a report stating "We believe a 'Depression' began in 2000, moderated by U.S. reserve currency status and coordinated monetary and fiscal intervention." That's a mouthful.
My translation: when the Tech Bubble burst, everything started heading downhill, culminating with the financial crisis of 2008. However, thanks to central bank and government policies like quantitative easing and TARP, things didn't look or feel like Great Depression 2.0.
But most of the projects never materialized and our infrastructure continues to crumble. Flint, Michigan's lead-tainted drinking water is stark evidence.
According to the American Society of Civil Engineers, American infrastructure, from dams to roads to aviation facilities, receives an average letter grade of D+ for "poor". Furthermore, the ASCE estimates that $3.6 trillion in spending is required by 2020 to repair and modernize the country's infrastructure.
You want to see the needle move on national economic growth? $3.6 trillion is a helluva start. And I believe regardless of who wins the White House, that spending is coming down the pike.
From materials purchasing to capital equipment to consumer spending thanks to jobs created, the United States would see REAL economic expansion. While the long term benefit to investors could be felt across many different industrial sectors, here are a few of the immediate beneficiaries.
General Electric (NYSE: GE) -- Fewer companies are better positioned than GE to profit from the pending U.S. infrastructure boom. Railroads: new and improved locomotives and software systems for rail management. Energy: generation equipment for rebuilding the existing electrical grid, wind turbines for clean energy, as well new and efficient components for the oil drilling industry (yes…fossil fuels are still a part of America's energy plan). At around $29.53, the stock trades at a 11% discount to its 52-week high with an attractive 3.1% dividend yield.
Caterpillar, Inc. (NYSE: CAT) -- While some pundits have grown bearish on the construction equipment manufacturer due to concerns over a slowdown in Chinese economic activity, an American infrastructure buildout is sure to counteract any international softness in the company's business. The company's prominent market position in paving equipment is a natural fit for highway improvements. Although shares are currently making new highs, current levels around $87.47 are well off of their 2014 highs of $100. The stock pays an annual dividend of $3.08 for a 3.5% yield.
Fluor Corporation (NYSE: FLR) -- Recognized as a best in class company, Fluor provides integrated engineering, procurement, fabrication, construction, maintenance and project management services to both the public and private sector. The company's core competency includes focus on large, complex power and infrastructure projects. At $50.69, Fluor shares trade at a 9% discount to their 52-week high with a 1.65% dividend yield and a forward P/E of 15.6.
Risks To Consider: The biggest risk to this idea is that it doesn't happen. Vocal segments of the American electorate as well as the Congress are resolutely opposed to any discussion of increase in the federal debt. While the debt is a major national issue, it's not as grave or unmanageable as the propagandists would like us to believe. I explored the issue recently here. Regardless, all three stocks are world class businesses with excellent management and solid, sustainable franchises that are already executing well.
Action To Take: The thesis of investing ahead of a macro thematic event such as a large, national infrastructure overhaul is a classic long game scenario. It requires patience and optimism. However, the economic and political climates are probably better than they've ever been for such an event. While it's much too early to predict with any accuracy potential profits, owning three high quality companies paying a blended dividend yield of 2.73% should provide a decent cushion while the story plays out.
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Disclosure: Adam Fischbaum owns GE in managed client accounts.