Around the world, diggers are mobilizing, cement lorries are loading up, and armies of road and rail workers and builders are gearing up for action.
From America to London, China to Chile, governments are ready to build their way out of the global recession with huge stimulus packages which will focus to a large degree on new infrastructure.
On 6 December, US President-elect Barack Obama outlined a plan to create millions of jobs in the U.S. by “making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s.”
Obama’s plans include investments in roads and bridges as well as work to make public buildings more energy-efficient, modernize schools and improving Internet-based communication and its availability around the country.
Meanwhile, here in the UK the government has also announced a £18 billion stimulus plan – with huge chunks of money for infrastructure. News agency, AFP, also reports “a massive public spending plan to pump more than $32 billion into Argentina’s infrastructure.”
A dominant investment theme for 2009
And as American colleague Chris Mayer puts it, this is a dominant theme for 2009: “Think of it as a kind of contagion. Soon every government with a slowing economy from Capetown to Moscow, from Brasilia to Bangkok, could follow suit.”
Robert Markman, portfolio manager of the Markman Global Build-Out Fund, concludes that Governments around the world “are making plans to jump-start their economies by throwing hundreds of billions of dollars at infrastructure projects”.
This could lead to a great 2009 for companies that make cement, steel, asphalt, and anything else you can think of that goes into building things. Not to mention the companies that supply the machinery which the many infrastructure projects will need to get things built.
Now’s the time to start looking for ways to play this emerging mega-trend, especially as share prices for these kinds of companies have – along with everything else – corrected so sharply in the past year, many of them now look very cheap.
So, how to play it? Well, we’ll be conducting some in-depth research here at Fleet Street on the best ways to profit from the coming infrastructure boom. We’ll pass on our best ideas when we’ve worked things through.
But we have some early thoughts that we’ll be following through to see if they stack up…
Long-term investors keen to buy into the market might consider the kind of companies that will be at the forefront of the building projects. Companies like US-listed Caterpillar should be in great demand as building gets underway.
According to a recent report from Associated Equipment Distributors, a construction industry body, for every dollar spent on highway construction, an estimated 6.4 cents will be used toward the purchase or lease of equipment or on major repair and maintenance. The report also predicts that, 12 cents out of every dollar spent on water infrastructure projects will go towards construction equipment. That’s good news for companies like Caterpillar.
Eight months ago, Caterpillar was trading at over $85 dollars, but you can pick up shares now for a little over $45. With this kind of planned demand, Caterpillar looks pretty cheap on its current single-digit P/E ratio – one certainly worth taking a closer look at.
Closer to home, another beneficiary could be Zurich-based ABB Ltd. The company is the global leader in the business of building, refurbishing, and creating the supplies for industrial, municipal, and national power supplies. It should also be a huge beneficiary of China’s $586 billion stimulus package, which is aimed at infrastructure build-out. We’ll be checking that one out, too.
As I said, we’ll be looking closely at this growing trend in the months ahead. When we have found the individual shares that we believe are best placed to deliver solid gains from the global infrastructure boom, we’ll let you know.
Battered ETFs offer an easy way in
In the meantime, consider some of the many tracker investments that have been created for exactly this kind of investment story. In recent years, there have been lots of infrastructure-related exchange traded funds (ETFs) launched. This was as a direct result of investor appetite for an easy way to play the long-term global infrastructure boom driven by emerging-markets countries.
Of course, this boom looked like it had been derailed in 2008 following the credit crunch and the huge slowdown in global growth. Suddenly, emerging markets fell out of favour.
But the smart investor will realise that this is only a temporary setback. Emerging markets will get back on track and keep emerging. And the coming stimulus shock from all around the world will keep countries building new roads, railways, bridges, schools and broadband internet infrastructure.
ETFs investing in industries including construction, engineering, utilities, building materials, industrial equipment and metals may have been battered in recent months. But they could be due a very powerful rebound in the months and years ahead.
Regards,
Frank Hemsley
For Fleet Street Daily
Crude oil surges higher
BY FRANK HEMSLEY
Colleague Manraaj Singh who heads up our Profit Hunter service has been banging the drum for oil these past few weeks. He’s been urging readers to get some exposure ahead of a new surge higher.
And so far, it looks like he’s nailed it.
Only on Christmas Eve, a barrel of West Texas light sweet crude oil was languishing at $35.35.
On that day, Manraaj told his readers: “The price of oil is set for a major rebound in 2009. So you can think of OPEC’s oil cuts as an early of Christmas present.”
As the chart below shows, he called it pretty well. Since Christmas, oil has rallied some 36% to yesterday’s London close of $48.08.
Meanwhile, the stock that Manraaj has picked to play the new oil rally is up by 31% in the same period. But it still has further to run.
The Daily Reckoning – Investors being fattened for slaughter
BY BILL BONNER
“Psst... we’re breaking out of this joint... Saturday night... pass it on...”
Yes, dear reader... we’re breaking out... We’re not going to let these prison bars stop us. A whole generation of American investors is being fattened for slaughter... we’re not going to be among them.
Let’s look at yesterday’s headlines just to see what is going on.
The Dow rose 62 points yesterday. Oil held steady at $48. Gold went up $8. Yields are rising... but you still get paid nothing when you lend money to the US government.
The economic news tells us that things are getting worse. Alcoa said it will lay off 13,500 workers. But all across the country, businesses are either laying off old workers or not hiring new ones. Most of the joblessness never makes the news – until it is already painful to the fellows without jobs. Small businesses don’t announce layoffs. Nor do they send out a press release when they decide not to hire a new kid at the carwash.
After the worst car sales in half a century, Toyota says it is shutting down its plant for 11 days.
And a figure out yesterday tells us that consumer bankruptcies rose 33% last year. But the crash came late in 2008; job cuts didn’t really begin until the last quarter. People didn’t have a chance to get their paperwork together. This year, the bankruptcy numbers should really soar.
Most likely, Americans are still in the dark about what is going on. Heck... their leaders are driving without headlights... why shouldn’t the lumpen too? People don’t seem too sore about what happened to them in ’08. They’re still hopeful that a new administration will find a way to fix things. Yes, they’re planning on cutting back spending and saving money... but they have no idea how their attempts at thrift – magnified by millions of other citizens – will affect the economy…
To read today’s Daily Reckoning in full, click here.
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