Private Infrastructure Stocks Revisited

 | Jul 23, 2014 | 5:00 PM EDT  | Comments
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Two months ago, I wrote about two ETFs that focus on investments in companies that build, manage and operate private physical infrastructure projects, toll roads, bridges, energy transmission and distribution systems: iShares Global Infrastructure (IGF), and SPDR S&P Global Infrastructure (GII).

The genesis of that column was the potential for disruption in the infrastructure space caused by the Russian annexation of Crimea. This occurred shortly after President Obama announced his attention to pursue a domestic infrastructure spending program as part of his 2015 fiscal budget proposal.

The recent events in Ukraine warrant revisiting this issue. In the two months since I posted my original column, IGF and GII are both up about 5%. Since the shooting down of Malaysia Airlines Flight 17 on July 17, they are both up about 2%.

In the same two time periods, the U.S.-based private sector infrastructure companies I mentioned in the May column have moved sideways, as traders, speculators and investors have apparently chosen not to decide on what the prospects are for the president's plan to reduce military spending and increase domestic spending.

Jacobs Engineering Group (JEC), Fluor (FLR), and Granite Construction (GVA) have moved little over the past few months nor in the past six days. Chicago Bridge & Iron (CBI) has declined about 12% in the past few months but has not moved since MH17 was shot down.

The performance of the largest U.S. government contractors is slightly more positive, as speculators and traders in them have apparently decided that President Obama's plans for domestic spending increases at the expense of military spending probably can't pass Congress at this point.

Lockheed Martin (LMT) and General Dynamics (GD) are up 4% and 5%, respectively, in the past two months, while Raytheon (RTN) is sideways and Boeing (BA) is down about 3%. In the past six days, since the downing of MH17, these stocks are up 4%, 4%, 2%, and 1%, respectively -- that includes Boeing being down 2.25% today alone on last quarter's earnings report.

The totality of the moves in these three sectors indicates that speculators and traders are tilting toward a 2015 U.S. fiscal budget and beyond, which will not allow for the shifting of military spending to domestic infrastructure. In order to advance infrastructure spending and privatization, decisions made about it at the state and municipal level will become an increasing priority throughout the U.S. However, moves in all of three sectors are still small and represent a prudent hesitancy by speculators and traders to commit to what the outcome of the budget fight this year will be.

In my  last column, I concluded with a fourth group of stocks that should be able to benefit regardless of what the resolution of the budget is though because they participate in both the defense and infrastructure areas. Those are 3M (MMM) , General Electric (GE), and United Technologies (UTX) . In the past two months, 3M has moved up 3%, GE has moved down 2% and UTX has moved down 4%. In the past six days, 3M is up 1%, GE is down 2% and UTX is down 3%. Of these four groups of stocks, the only one that appears to imply conviction by speculators for continued growth regardless of geopolitical risk and U.S. budget issues are the ETFs focused on privatized infrastructure.

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