President Obama has proposed spending $50 billion to improve roads and rails in the U.S. in an attempt to put people to work and jump start the economy.
It already is being met with fierce opposition in Congress, but let’s assume for just a moment that it gets passed. Who stands to gain from this, aside from the homeowners who will finally get those potholes fixed? What companies will gain, and how can investors get in on it?
The first things that come to mind are infrastructure funds, of course. But most the funds followed by Lipper are global in nature, so the extra money being spent in the U.S. will have a muted affect. However, most of them do put the U.S. first when determining country allocation. The ones that have been around the longest, from Lipper’s data, are Forward Global Infrastructure, SPDR FTSE/Macquarie Global Infrastructure 100 ETF, and Virtus Global Infrastructure Fund.
Beyond that, you could talk to clients about individual stock plays. Construction companies and engineering companies, other obvious beneficiaries of more spending on infrastructure projects, are often privately held, but not always. You could look at companies like Caterpillar, Flour Corp., Jacobs Engineering, or Shaw Group.
But remember that picking individual stocks is risky. Just because there is some extra money sloshing around the system isn’t a good enough reason to load up on a specific construction or engineering stock. It first has to make sense with the rest of the portfolio. That is, don’t let your clients knock their risk level out of whack, or load up too much on one sector (they may well have a similar exposure elsewhere in their portfolio). And these investments should not be part of a core.
But as long as we’re discussing individual stocks, don’t forget the railroads. It may sound antiquated, but they enticed Warren Buffett last year. He bought Burlington Northern on the idea that the country was in for a slow, long-term recovery and the railroads would benefit from the demand to move goods from A to B. And now, there may be some federal money looking to improving the tracks. Some of the publicly traded railroads include CSX Corp, Norfolk Southern Corp., and Union Pacific Corp.
Those are the obvious beneficiaries of infrastructure spending. But how about the indirect winners? An improved infrastructure will help with the general economy. While Warren Buffett can buy an entire railroad, there may well be other ways to reap some gains. What about all the towns along the rails, or the interstates that will see more business? Perhaps investing in their muni bond offerings would be a possibility. What about the businesses both big and small that will benefit from a better highways and better railroads? Perhaps even the suppliers to rail yards or carmakers.
You can think endlessly about the eventual winners of any big story, but remember two things: Investing in individual stocks is tricky so make sure your clients have really thought through things; and in this case, the plan may not even pass Congress.
But even so, the exercise of thinking through a big issue may well help your clients for the next time something like this happens. Because anytime Congress makes a bold action (i.e. spends a lot of money), there are bound to be somebody who wins, even if it’s not immediately obvious who it will be.
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