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All Contents © 2017The Kiplinger Washington Editors
By James K. Glassman, Contributing Columnist
| October 2016
Trump: Gage Skidmore via Wikipedia; Clinton: Zachary Moskow via Wikipedia
Boosting economic growth will be a top priority of the new president, whoever wins the election. Hillary Clinton and Donald Trump differ in some ways on how to get the job done. For example, Clinton wants to slap a tax surcharge of 4% on Americans who make more than $5 million a year; Trump wants to cut the top marginal federal tax rate from 39.6% to 33%. But on other policies, they are much closer.
On infrastructure, for example. Trump wants a “trillion-dollar rebuilding program” for the nation’s highways, bridges, airports and power grid. Clinton says she’ll spend $575 billion on infrastructure over five years. Also, both Trump and Clinton have loudly opposed the Trans-Pacific Partnership, an agreement to open up trade in Asia.
Stocks of companies that build infrastructure and benefit from it, and companies that gain from reduced foreign competition would be beneficiaries no matter who takes the job. Wise investors should position themselves to profit.
All data is through August 31. Revenue is for the past 12 months. Price-earnings ratio based on estimated earnings for the next four quarters. Sources: Thomson Reuters, Yahoo.
Share price: $113
Market value: $15.1 billion
Revenue: $3.6 billion
Price-earnings ratio: 28
Dividend yield: 0.7%
Vulcan Materials, which makes the concrete and asphalt that go into roads and bridges, has operations in the U.S., Mexico and the Bahamas. Vulcan’s stock, which has more than quadrupled since September 2011, isn’t cheap. Still, the stock should benefit from a ramp-up in infrastructure spending.
Share price: $26
Market value: $3.9 billion
Revenue: $7.3 billion
Price-earnings ratio: 13
Dividend yield: 0%
Quanta Services, which builds and repairs electric power, energy and telecommunications infrastructure in the U.S. and Canada, also stands to benefit. Quanta shares have risen by 49% since February 11 of this year, which is when the stock price began a significant upward move. But the stock is still far below its peak, and the price-earnings ratio, based on estimated profits over the next 12 months, is just 13, compared with 17 for the S&P 500.
Daniel Hoherd via Flickr
Share price: $48
Market value: $1.9 billion
Revenue: $2.4 billion
Price-earnings ratio: 22
Dividend yield: 1.1%
Granite Construction, which engages in heavy-construction projects, has recently landed contracts for paving an airfield in Kentucky, rebuilding a bridge in Chicago and constructing a Marine training facility at Camp Pendleton, in California. Granite’s backlog of projects under contract for future work (in dollar terms) was a record $3.8 billion on June 30. The stock has soared 65% since October 2015, but it remains 30% below its 2007 high.
Share price: $80
Market value: $6.5 billion
Revenue: $1.6 billion
Price-earnings ratio: 44
Dividend yield: 6.3%
Macquarie Infrastructure provides a wide variety of services—such as fuel storage and private-terminal operations—that will gain from expansion and renovation of airports and seaports. Macquarie shares are volatile and expensive, but they pay a generous dividend, which the company has raised 11 quarters in a row. The stock currently yields 6.3%.
Other beneficiaries of better infrastructure are delivery companies, such as FedEx (FDX) and United Parcel Service (UPS), and truckers, such as JB Hunt Transport Services (JBHT) and Old Dominion Freight Line (ODFL). Another winner: Amazon.com (AMZN), which will get faster package delivery.
Share price: $49
Market value: $15.4 billion
Revenue: $15.6 billion
Price-earnings ratio: 14
Dividend yield: 3.1%
Steel companies will benefit not just from infrastructure spending but from a tougher stand against Chinese imports. Nucor, the pioneer in efficient mini-mill manufacturing and now the largest U.S.-based steel company, has had to contend with a glut of the metal from China that has depressed prices. So has United States Steel (X), a smaller company that still enjoys good sales of such products as pipes and auto parts. Analysts see the firm losing money this year, but on average they expect profits of $1.70 per share in 2017. Nucor is the financially stronger company, but U.S. Steel’s shares probably have more appreciation potential if steel prices rise.
It’s a shame none of the dozens of mutual and exchange-traded funds that specialize in infrastructure stocks focus solely on U.S. firms. The best bet is iShares Global Infrastructure ETF (IGF), which devotes 39% of its assets to U.S. stocks, with an emphasis on the transportation of energy.
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