Why Infrastructure Stocks Could Be Big Winners in 2018
There was a considerable amount of talk about infrastructure at the end of 2017.
At the time, an Amtrak train derailed in Washington State before derailing on a bridge over Interstate 5, sending trains onto the highway.
Three people died. Another 100 were injured.
Shortly thereafter, Donald Trump tweeted:
A power failure that brought one of the world’s busiest airports to a standstill in Atlanta underscores the vulnerability of critical infrastructure. Delta Air Lines was forced to cancel 1,000 flights Sunday and another 400 on Monday.
Plane bridges couldn’t be used to get passengers off of the jets.
The airport train, security scanners, baggage systems and airline computer systems could not be used. All because an underground piece of electrical equipment owned by Georgia Power failed and caught fire, noted The Wall Street Journal.
Some of this comes as no surprise, unfortunately.
America’s aged infrastructure has been failing for quite some time.
One look at the countless potholes, congested roads, derailed trains, collapsed bridges and weakened dams is proof enough. Just to fix it all could cost as much as $3.6 trillion by 2020, says the American Society of Civil Engineers (ASCE).
What’s worse, the ASCE just gave current U.S infrastructure a D+ rating. Even the Federal Transit Administration (FTA) has estimated that there’s an $808.2 billion backlog in deferred maintenance on the nation’s rail and bus lines.
On top of that, according to the American Road and Transportation Association, nearly 56,000 bridges in the U.S. alone are structurally deficient.
More than 25% of current bridges are over 50 years old. Yet, federal spending on infrastructure has fallen 9% in the last 10 years.
However, as we near January 2018, the White House is preparing to roll out its $1 trillion infrastructure plan. According to The Hill, “the administration has long said it wants to use $200 billion in federal seed money, along with significant permit reform and other incentives, to leverage $1 trillion worth of overall infrastructure investment.”
While there will be a lot of debate from both sides of the aisle, news of an infrastructure push could be enough to send related stocks higher.
Some stocks to keep an eye on for 2018, include:
No. 1 – Jacobs Engineering (JEC)
Since late August 2017, shares of Jacobs Engineering soared from a low of $49 to $68 for example. This is the company that provides technical, professional, and construction services. It offers project services that include engineering, architectural, interiors, design, planning, and related services, as well as planning, scheduling, procurement, estimating, cost engineering, project accounting and delivery, safety, and other support services. Interesting to note, JEC’s buildings and infrastructure unit generated 21% of its $11 billion in 2016 revenue, and 30% of its $586 million in 2016 operating profits. Plus, in August 2017, it acquired CH2M for $3.3 billion in an effort to strengthen its government services and infrastructure business.
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No. 2– U.S. Concrete (USCR)
Since the start of 2017, shares of USCR have run from $68 to $79 and were likely to run higher on excitement of a Trump infrastructure plan. The company produces and sells ready-mixed concrete, aggregates, and concrete-related products and services for the construction industry in the United States. It operates through two segments, Ready-Mixed Concrete and Aggregate Products. The Ready-Mixed Concrete segment engages in the formulation, preparation, and delivery of ready-mixed concrete to customers' job sites; and the provision of various services that include the formulation of mixtures for specific design uses, on-site and lab-based product quality control, and customized delivery programs.
No. 3 – U.S. Steel (X)
Shares of U.S. Steel were having a miserable year. By September 2017, it quickly reversed course and ran from $23 to $34. At it lows, even JP Morgan analysts have argued that doomsday scenarios are misplaced with this stock, and that the current price is an attractive place to take a position. According to Barron’s, those same analysts said that recent weakness created an “excellent entry point for investors.”
We have to consider that a possible trillion-dollar infrastructure push from Donald Trump, and a potential $2 trillion push from the Democrats could reignite the stock, too. A significant investment in infrastructure would surely boost demand for most steel production the U.S. In fact, the President has consistently noted that the nation's coal, iron and steel industries could use some help. By improving our nation's infrastructure, these industries could recover quickly.
No. 4 – H&E Equipment Services Inc. (HEES)
H&E Equipment Services, Inc. operates as an integrated equipment services company. The company rents, sells, and provides parts and service support for hi-lift or aerial work platform equipment, cranes, earthmoving equipment, and industrial lift trucks. It offers heavy construction and industrial equipment for rent on a daily, weekly, and monthly basis. It also sells new and used equipment and parts, as well as provides maintenance and repair services for the customers owned equipment. In addition, it provides ancillary equipment support activities, including transportation, hauling, parts shipping, and loss damage waivers. The company provides its services to industrial and commercial companies, construction contractors, manufacturers, public utilities, municipalities, and maintenance contractors, as well as for other industrial accounts.
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