Rebuild, Repair and Recover

 | Oct 30, 2012 | 1:00 PM EDT
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Hurricane Sandy is pretty much past now, leaving substantial devastation in her wake. We will probably see more flooding and loss of electrical power as it continues inland, but the headline-grabbing coastal destruction is over for now. Having been through a few of these megastorms over the years, I know that the cleanup is not going to be fun for those in the hard-hit areas. Living without electricity will not be a joyride for those throughout the mid-Atlantic states and Northeast.

For the rest of us, it's a time to catch up on paperwork and research and, my wife hopes, some household chores. With the markets closed there is a chance to take a breath and perhaps catch up a bit. One of my tasks today is going to be reviewing my list of infrastructure stocks. This was a large powerful storm to be sure, but the fact that it took out so many critical roads, tunnels, electrical grids and water supplies is yet another indication that at some point, the U.S. will have to spend literally trillions of dollars to update these critical systems.

Please note, this is not a "hurricane play." This is a very long-term theme that I have touched on many times in the past. The great recession and miniscule recovery have delayed what has to happen in this country. I could make a convincing argument that the Federal Reserve should have built roads instead of buying bonds to spark the economy, but that is a subject for another day. I do not know when all the needed infrastructure spending will happen. I just know it has to before many more years go by.

I will not break from discipline to buy infrastructure stocks either. Over the past couple of years we have been able to buy stocks like Mueller Water (MWA), LB Foster (FSTR) and Granite Construction (GVA) when they traded at a discount to my valuation metrics. I still own shares of Pike Electric (PIKE) that I bought in a market decline at a good price. The results so far have been somewhat mixed, but I intend to keep small positions in this group in anticipation of infrastructure becoming a boom-and-bubble sector in the market.

Valuation always comes first for me, but this trend is readily apparent. It is not a question of if, but when. I will spend part of today updating price-to-book and EV/EBITDA ratios, recalculating intrinsic value for the companies in this sector.

Meanwhile, I hope all my friends in storm-ravaged regions are safe and get dry quickly.



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