The upcoming election will be about one thing: job creation. It's no secret today that a vast majority of Americans are unhappy with the politics in America, on both the right and the left. So far, no policy has been able to put people meaningfully back to work. The economy remains stagnant as long as housing remains subdued and no tangible signs of a true housing recovery can be seen. A renewed focus has been put back on creating an infrastructure bank, and the environment now looks more ripe than ever to bring this effort to fruition.
The Obama Administration is aggressively working on a jobs package in order to alleviate unemployment and get the economy going again. A major part of that package will likely be the idea of an infrastructure bank. While some dispute the effect that such a bank would have on job creation before the 2012 election, I don't think anyone, left or right, will try to block this idea. No politician wants to be branded as someone who opposed a sensible policy that could put Americans back to work. Initial proposals are calling for a first level of government funding of between $10 billion and $25 billion -- hardly a contentious figure.
Already the Chamber of Commerce has strongly voiced support for such a bank. Pension funds, private equity funds and sovereign wealth funds have hundreds of billions of dollars ready and likely to be invested in low-risk, infrastructure projects that offer significantly higher returns than Treasury yields. Currently, demand for housing is at historic lows. Low interest rates and depressed real estate prices are clearly not enough to spur demand. A boost in consumer confidence would help housing and the economy, and the addition of more jobs would help elevate consumer confidence. Many attempts to resuscitate the economy have been made, so far -- except for a serious infrastructure program.
History has shown that infrastructure projects, when done right, not only create value, but generate attractive cash flow for many years. Brookfield Infrastructure Partners (BIP) is a prime example with a solid cash flow allowing the company to pay out an incredibly attractive 5.3% yield.
After years of difficulty, suppliers of cement and aggregates - the raw materials for infrastructure projects -- may finally be ready to climb out of the abyss that they have been in for years. Texas Industries (TXI), based in Texas, is in an ideal location to benefit from a boost in infrastructure. The company's shares have continued to decline and are trading near a 52-week low of $30. All the while, Southeastern Asset Management, run by value investing legend Mason Hawkins, continues to buy shares and owns about 25% of the company. If it's any consolation, analysts at Jeffries recently upgraded TXI to "buy" from "hold".
Eagle Materials (EXP) is another Texas-based business that provides construction materials for infrastructure construction, and the company has remained profitable throughout the recession. Shares are trading for about $19.5 and yield 2%. Over the past three years, free cash flows, which are likely depressed in this current environment, have totaled nearly $150 million. The current market cap is below $900 million, while the enterprise value is about $1.1 billion.
Shares in the civil and infrastructure construction company Tutor Perini (TPC) are as cheap as they've been in a while. Trading at $14 a share, the stock price values the company at 9x trailing earnings and less than 6x forward earnings. Book value per share stands at $28.49, although half of that figure consists of goodwill. The catalyst is simple: More construction projects will boost sales and profits and won't leave shares trading at a single-digit multiple for long.
Businesses related to infrastructure or construction are trading have been trading at depressed levels for several years now as the volume of projects has fallen off a cliff. The U.S. economy needs jobs, and any political figure that wants support of the American public needs to spur job creation. Infrastructure provides a way to do that without boosting entitlements. Shares of infrastructure-related companies will surge if the infrastructure bank idea takes hold. If it doesn't, shares likely will be at the same levels they are today.