Stephenson Home Meet Stephenson Stephenson Commentary Stephenson Videos Stephenson Media Stephenson Blog Stephenson Commodities Stephenson Book Press Stephenson Speaking Stephenson Contact
flash
 
Commodity Investing Shell Shocked
 
Recent Tweets
 

Markets: Bridge Building
New York: February 16, 2009
By John R. Stephenson

With America and much of the world gripped in the jaws of a major recession, governments are stepping in with so-called stimulus packages to get people back to work. Around the world, governments are targeting infrastructure spending as a way of jump starting the economy. Roads, rails and runways are where the action is going to be in the coming decades, creating profitable opportunities for investment.

In the United States , the Obama administration is trying to resuscitate the American economy with an $800 billion plus spending spree. The amount targeted toward infrastructure is at least $150 billion. In China , the story is similar, a near $600 billion stimulus package with about 80 per cent of it targeted toward infrastructure.

Infrastructure spending is more than “feel good” government spending — it is the critical backbone of commerce for any modern nation. Insufficient capacity at the ports can leave farm exports rotting on the dock. Traffic congestion is more than an inconvenience: in a world where time is money, delays on American roads can cost at least $78 billion annually from 2.9 billion gallons of wasted fuel and 4.2 billion lost work-related hours. Flight delays in U.S. airports have cost America $15 billion each year in lost productivity. Electricity shortages can bring manufacturing to a grinding halt. Having trouble making an outbound phone call because cellular networks are a little spotty? Then good luck trying to operate a call center or other service oriented business. Transportation, electric utilities as well as communications and energy delivery systems are the lifeblood of business, which means that North America 's crumbling infrastructure is a big threat to our economic health.

Massive underinvestment in infrastructure over the last fifty years has left North America competitively weakened and has imperiled lives. In Minneapolis, during the summer of 2007, the evening rush hour commute was interrupted when the entire span of The Interstate 35 W Bridge collapsed, sending sixty people to hospital and killing twelve; a freight train passing underneath the bridge at the time of the collapse was cut in half by falling cars, concrete and twisted metal. A 2001 report by the American Society of Civil Engineers assigned an average grade of D+ (poor) to America 's stock of infrastructure. According to Federal Highway Administration, 72,000 U.S. bridges are “structurally deficient.” The U.S. Department of Transportation Financing Commission was even more blunt in their 2008 assessment of America 's roads, declaring the nation's surface transportation to be “in a physical and financial crisis.”

So great is the need, that globally there could be $25 to $30 trillion of new infrastructure investment needed over the next 20 years. In the United States , there is over $136 billion in infrastructure projects that could get people back to work between now and 2011.

Unlike a lot of government projects, infrastructure spending actually has a multiplier effect that is nothing to sneeze at. For example, CIBC World Markets estimates that in the U.S. , a 1 per cent increase in infrastructure spending has twice the economic benefit of a tax cut of the same dollar amount. Globally, the biggest infrastructure spending will be on the transportation sector — the roads, rails and runways that help get us to work and back home. Of the estimated $25 to $30 trillion on new infrastructure projects over the next two decades, some 40 per cent is expected to be spent on transportation.

Infrastructure investing is sure to be hot, as governments ready themselves to buy jobs. Since mid-November, U.S. infrastructure stocks are up more than 50 per cent as investors lick their lips in anticipation of bucket loads of government cash coming their way.

The area that tends to perform the best early on in the investing cycle is the engineering companies. These are the companies that design, plan and in many instances oversee the execution of major infrastructure projects. They can rapidly staff up, or, if they are big enough, make accretive acquisitions of competitors to super charge their growth. Later on in the cycle, equipment vendors tend to do well as construction companies purchase or lease new equipment.

But beyond the wall of public money that is coming over the next few years, private money is likely to keep the party going for quite some time. Pension funds are already interested in the sector, since it offers favorable risk return characteristics that pension funds love. And even a minor shift in their portfolio composition toward infrastructure investing can dramatically improve investor's prospects.

The infrastructure growth story remains very much intact as governments both here and abroad continue to announce massive stimulus packages to put people back to work. Coupled with a yawning infrastructure gap, the neglect of thirty or forty years of under spending begins to show up with tragic consequences. Engineering companies are a smart way for investors to play the infrastructure theme since they generally offer high growth rates, the potential to make accretive acquisitions of smaller competitors, low earnings volatility and good balance sheets. No matter how you slice it, infrastructure is one smart way to profit from government.

In the United States , the Obama administration is trying to resuscitate the American economy with an $800 billion plus spending spree. The amount targeted toward infrastructure is at least $150 billion. In China , the story is similar, a near $600 billion stimulus package with about 80 per cent of it targeted toward infrastructure.

Infrastructure spending is more than “feel good” government spending — it is the critical backbone of commerce for any modern nation. Insufficient capacity at the ports can leave farm exports rotting on the dock. Traffic congestion is more than an inconvenience: in a world where time is money, delays on American roads can cost at least $78 billion annually from 2.9 billion gallons of wasted fuel and 4.2 billion lost work-related hours. Flight delays in U.S. airports have cost America $15 billion each year in lost productivity. Electricity shortages can bring manufacturing to a grinding halt. Having trouble making an outbound phone call because cellular networks are a little spotty? Then good luck trying to operate a call center or other service oriented business. Transportation, electric utilities as well as communications and energy delivery systems are the lifeblood of business, which means that North America 's crumbling infrastructure is a big threat to our economic health.

Massive underinvestment in infrastructure over the last fifty years has left North America competitively weakened and has imperiled lives. In Minneapolis, during the summer of 2007, the evening rush hour commute was interrupted when the entire span of The Interstate 35 W Bridge collapsed, sending sixty people to hospital and killing twelve; a freight train passing underneath the bridge at the time of the collapse was cut in half by falling cars, concrete and twisted metal. A 2001 report by the American Society of Civil Engineers assigned an average grade of D+ (poor) to America 's stock of infrastructure. According to Federal Highway Administration, 72,000 U.S. bridges are “structurally deficient.” The U.S. Department of Transportation Financing Commission was even more blunt in their 2008 assessment of America 's roads, declaring the nation's surface transportation to be “in a physical and financial crisis.”

So great is the need, that globally there could be $25 to $30 trillion of new infrastructure investment needed over the next 20 years. In the United States , there is over $136 billion in infrastructure projects that could get people back to work between now and 2011.

Unlike a lot of government projects, infrastructure spending actually has a multiplier effect that is nothing to sneeze at. For example, CIBC World Markets estimates that in the U.S. , a 1 per cent increase in infrastructure spending has twice the economic benefit of a tax cut of the same dollar amount. Globally, the biggest infrastructure spending will be on the transportation sector — the roads, rails and runways that help get us to work and back home. Of the estimated $25 to $30 trillion on new infrastructure projects over the next two decades, some 40 per cent is expected to be spent on transportation.

Infrastructure investing is sure to be hot, as governments ready themselves to buy jobs. Since mid-November, U.S. infrastructure stocks are up more than 50 per cent as investors lick their lips in anticipation of bucket loads of government cash coming their way.

The area that tends to perform the best early on in the investing cycle is the engineering companies. These are the companies that design, plan and in many instances oversee the execution of major infrastructure projects. They can rapidly staff up, or, if they are big enough, make accretive acquisitions of competitors to super charge their growth. Later on in the cycle, equipment vendors tend to do well as construction companies purchase or lease new equipment.

But beyond the wall of public money that is coming over the next few years, private money is likely to keep the party going for quite some time. Pension funds are already interested in the sector, since it offers favorable risk return characteristics that pension funds love. And even a minor shift in their portfolio composition toward infrastructure investing can dramatically improve investor's prospects.

The infrastructure growth story remains very much intact as governments both here and abroad continue to announce massive stimulus packages to put people back to work. Coupled with a yawning infrastructure gap, the neglect of thirty or forty years of under spending begins to show up with tragic consequences. Engineering companies are a smart way for investors to play the infrastructure theme since they generally offer high growth rates, the potential to make accretive acquisitions of smaller competitors, low earnings volatility and good balance sheets. No matter how you slice it, infrastructure is one smart way to profit from government.

StephensonFiles is a division of Stephenson & Company Inc. an investment research and asset management firm which publishes research reports and commentary from time to time on securities and trends in the marketplace. The opinions and information contained herein are based upon sources which we believe to be reliable, but Stephenson & Company makes no representation as to their timeliness, accuracy or completeness. Mr. Stephenson writes a regular commentary on the markets and individual securities and the opinions expressed in this commentary are his own. This report is not an offer to sell or a solicitation of an offer to buy any security. Nothing in this article constitutes individual investment, legal or tax advice. Investments involve risk and an investor may incur profits and losses. We, our affiliates, and any officer, director or stockholder or any member of their families may have a position in and may from time to time purchase or sell any securities discussed in our articles. At the time of writing this article, Mr. Stephenson may or may not have had an investment position in the securities mentioned in this article
Join Me
Twitter
YouTube
Facebook
 
Home | Meet John | Commentary | Videos | Media | Blog | Commodities | Book Press | Speaking | Contact
© 2011 - 2012 John Stephenson. All Rights Reserved