The Iowa caucuses -- where economic populists Donald Trump and Bernie Sanders did well -- seem to show that a large part of America wants and expects government solutions to our country's problems. If that view carries the day, getting in front of higher government spending would serve as one way to capture growth in the years and decades ahead.
If I opened a private-equity fund today, that would be my focus. Here are two government-services stocks that I like:
Providence Service Corp. (PRSC)
This firm is the poster child for government programs, running home-based counseling, substance-abuse treatment, correctional services and more for U.S. and Canadian agencies and insurance companies.
PRSC's workforce-development division also offers unemployed, disabled and unskilled people job training and advice on networking, interviewing and resume writing.
Providence isn't all that cheap right now, trading at around a 70x trailing-twelve-month P/E. But it's on my list of stocks to buy in a steep correction. I think acquiring shares in companies like PRSC during market declines could work out very well for long-term investors.
Willdan Group (WLDN)
This company provides government agencies with engineering and energy-efficiency services, as well homeland-security programs like emergency-preparedness planning, training and exercises.
Willdan should see consistent revenue and earnings growth from increased government spending in these areas. And with an EV-to-EBIT ratio of less than 6, the stock is cheap enough to buy right now.
Overall, I think the company could become a growth-stock leader in the years ahead.
The Bottom Line
The Wall Street Journal this week quoted economist Joshua Shapiro as saying that decreased consumer spending could reflect a populace that's becoming more convinced that America's political and economic system is broken.
I found that interesting, as I just spent two days at a conference talking to community bankers. These people are our economy's "boots on the ground," financing small-business growth and helping consumers pay for large purchases like autos and homes.
None of the bankers that I talked to were particularly upbeat about the U.S. economy, with many feeling that low growth might be the "new normal." They're not seeing demand for loans, and a huge "tell" is the fact that the industry's loan-to-deposit ratio is just 71% -- well below the 88% seen back in 2005.
That's concerning to value investors (including yours truly), as we need growth at some point for our value plays to work out. Strong, growing suitors must buy the undervalued companies that we invest in if we're going to make any money.
That means it's worth the time and effort to think about where future U.S. growth might come from in the "low-growth normal" that we're now experiencing.
I'll have some more ideas on this topic tomorrow, but in the meantime, I'd love to hear suggestions from readers and fellow RealMoney contributors. In a world of slow- or no-growth economies, where do you think investors should look to find asset and earnings growth? Feel free to post suggestions in the comments section below.