“Remade In America”

I was in Baltimore a few days ago to attend some business presentations and to catch up with colleagues and old friends.

Parkway TheaterOne of the presentations was held in an old theater that was being renovated.

The Parkway Theater was built in 1915 and its design was modeled on London’s West End Theater.

Being one of the first movie palaces on the east coast, The Parkway Theater was a runaway success from the day it screened its first movie, Zaza, on October 23, 1915.

Those were the glory days. And they lasted for over half a century.

But time took its toll and eventually the theater deteriorated to such an extent that it was closed down in 1978.

In the decades that followed, the building itself was used for various activities and even housed a shady Korean business for a while…

However, thankfully, wiser sense prevailed and concerned citizens and organizations are now trying to restore the lost glory of the theater.

One of those citizens, Jed Dietz, was on stage the evening I was there and walked us through the rebuilding process.

In Jed’s voice, I heard the same passion for bringing back “past glory” that I hear very often these days from the mouth (or twitter feed) of another prominent rebuilder of American infrastructure — Donald Trump.

And the theater, which housed many plays, is now itself playing a role — albeit a small one — in a bigger play called “Make America Great Again.”

Make America Great Again

Like the Parkway Theater, much of America’s infrastructure — mostly built in the early 1900s and after WWII — has seen better days.

In fact, when the American Society of Civil Engineers was asked to submit a report on U.S. infrastructure, shockingly, they gave America’s infrastructure a dismal D+ rating.

This does not bode well for America, because in the long run, the economy of a country depends on its infrastructure. And right now, our great nation does not even crack the top 10 nations for overall infrastructure quality.

Even if you look at individual cities, not one U.S. city ranks in the top 10 cities of the world in terms of infrastructure.

It’s not surprising.

The U.S. infrastructure was built according to high standards 50 years ago, but that’s no longer enough to ensure protection from today’s extreme weather.

Since the 1980s, the frequency of weather-related power outages in the U.S. has gone up by 10x.

Take 2016’s Hurricane Matthew for example. It caused damages equivalent to $15 billion.

A modern infrastructure based on data-driven predictions of such events would have resulted in far less impact and faster recovery, saving citizens from large damages and losses.

But it’s not just weather-related catastrophes…

Seventy percent of the 90,580 dams in the U.S. will be over the average lifespan of dams (50 years) by 2025.

Even the roads have worn out to dangerous levels.

In fact, the U.S. is in 60th place for road safety!

Time to Catch Up With the World!

As the failures of America’s obsolete infrastructure cripple interdependent systems such as transportation, energy and water…

Our economy and our society will be severely impacted.

And while we, as a country, spend billions of dollars being reactive instead of proactive, other nations are leaping ahead and actively promoting smart-cities where technology is being used to fuel economic growth.

Take Spain for example…

Barcelona is taking “better lifestyle through technology” to a whole new level.

The city has sensors to monitor air quality, parking spaces and even waste bins.

Once the bins are full, the sensors activate a subterranean vacuum network of pipes which suck trash below the ground. No messing with garbage trucks and stench.

And yes, the whole city has free Wi-Fi routed via street lighting.

Clearly, American cities are nowhere close to such forward thinking.

And this does not sit well with President Trump.

President Trump is a proud American.

And he wants America to be at least up there with the rest in the world, if not the first among equals.

But he knows as things stand, we have a long way to go.

Which is why on February 12, while releasing the 55 page “Legislative Outline for Rebuilding Infrastructure in America,” Trump said:

We will build gleaming new roads, bridges, highways, railways, and waterways all across our land. And we will do it with American heart, and American hands, and American grit.”

A Trillion Dollar Investing Opportunity

From an infrastructure point of view, Trump is the best man for the job.

He knows more about building and rebuilding than any other president in U.S. history.

He has already allocated $200 billion in Federal funds for infrastructure.

Of that $200 billion, $100 billion will create an incentive program to spur additional dedicated funds from states, localities and the private sector.

It is estimated that all this activity will spur at least $1.5 trillion in infrastructure investment.

And this isn’t mere speculation.

Private-equity investors are flocking to infrastructure investment opportunities as long-needed projects move towards lift-off.

In fact, private equity investors are on track to raise a record amount for infrastructure investing in 2018.

The firms collectively raised $68.2 billion in the first three quarters of this year, up 18% over the same period in 2017, and have already surpassed the $66.2 billion they amassed in all of 2016.

The writing is on the wall. Infrastructure stocks are in for a long bullish ride.

The problem is, infrastructure isn’t only about roads and bridges. It’s a huge sector including dams, railway tracks, waterworks, drainage systems, power and gas grids, transit systems, and pipelines, among others.

Given that there are so many different subcategories in this sector, it could be an uphill task to choose the best stocks, so it’s best to go for the tried and tested names, even if it means paying a premium.

Here’s my handpicked list of ten companies that will ride the crest of America’s new infrastructure wave.

  • Vulcan Materials (VMC)
  • U.S. Concrete (USCR)
  • Builders FirstSource (BLDR)
  • Caterpillar (CAT)
  • United rentals (URI)
  • Nucor(NUE)
  • United States Steel Corporation (X)
  • AECOM(ACM)
  • Chicago Bridge & Iron (CBI)
  • Jacobs Engineering (JEC)

Allow me to narrow it down for you a little more…

If I were to pick three plays from the above, I’d pick Nucor, Caterpillar and AECOM. Here’s my reasoning…

NUCOR: It would be difficult to construct bridges, pipelines, tunnels and rail tracks without steel. Therefore, steel stocks like Nucor are bound to benefit when infrastructure spending takes off. In recent years, Nucor has generated strong returns on invested capital. In fact, last year the company raised its dividend for the 45th consecutive year.

Bonus Point: Trump’s strong stand against cheap and illegal steel imports could fuel Nucor’s growth even more.

CATERPILLAR: This construction machinery behemoth is the undisputed global leader and has the broadest product portfolio among peers. It is the equipment supplier of choice to key sectors like mining, oil and gas, power, and transportation sectors.

And while it has done well for itself in the past, Caterpillar’s real gains are ahead as analysts expect the company to grow its earnings per share (EPS) by almost 40% in the next five years.

Bonus Point: Trump has already hinted that this construction giant could bag a big piece of government infrastructure contracts.

AECOM: AECOM specializes in providing infrastructure assets and services for government agencies. Last year, more than one third (37%) of AECOM’s $18 billion in revenue came from the U.S. federal, state, and local governments. The company is confident in growing its organic revenue annually at 5% between 2018 and 2022.

Bonus Point: Over the past 5 years, AECOM has generated greater FCF (free cash flow) than net income — a sure sign of management efficiency and financial muscle.

These three companies are all set to play the lead role in Trump’s play titled “Make America Great Again.”

Because America’s glory days are not behind us.

Along with the Parkway Theater that I sat in just a few days ago, new roads, bridges, pipeline systems and electrical grids nationwide will all be rebuilt over the coming years.

And now is your opportunity to “Make Your Portfolio Great Again” by buying shares of these companies before Trump’s plan starts getting attention from mainstream investors.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
TwitterFacebook ❘ Email

The Daily Reckoning