It seems that the pre-Halloween nor'easter that blew all the way up the coast has pointed out a glaring problem with the power grid in the most populated region of the country. People from Pennsylvania to Maine have -- again -- found themselves without power for an extended period of time.
Earlier this year, Hurricane Irena knocked out power on a long-term basis from the Carolinas all the way to the Canadian border. Each time, it took several days, in some cases weeks, to restore electricity to these homes. Internet and cable TV service has been similarly interrupted by storms that, in reality, were not that bad.
I am getting emails from folks huddled in the corner of their closest Starbucks (SBUX) or Barnes & Noble (BKS) to gain precious on line access.
I talk about infrastructure and the need to repair it here in the U.S. fairly often. I think the electrical grid, particularly in the heavily populated sections of the country is reaching the tipping point. Repairs cannot be delayed much longer, so the money is going to have to be found. You simply cannot have sizable pockets of population going without power, heat or connectivity. Almost everything we do in our modern technologically sensitive world runs on electricity. If you want to stop the world these days, all you have to do is stop the "go" juice. It strikes me that there is an enormous amount of money to be spent and made from this necessary rebuilding measures.
I am not an electrical engineer by any stretch of imagination. But I have lived along the coast for a long time and have one observation that seems important: If the power lines to the place where I live are buried, I don't ever lose power. If they are above ground, I do lose power. I am told by those who know far more than me that burying the power, phone and fiber optics would cause outages to decline substantially. The problem with this simple solution is that it is expensive. In the long run, it seems far more expensive not to do this.
Companies that repair and rebuild electrical transmission and generation plants are going to make a lot of money when the grid is upgraded and the lines are buried. I have owned a position in Pike Electric (PIKE) for some time now. I have traded around it, as the stock has a trading range from about $8 to $12 since early 2009, but I have maintained my core position in the stock. Not only does the company design, engineer and construct substations and transmission systems for major electric utility companies but it is active in storm repair markets. When storms hit its service areas, the phones begin to ring in Mount Airy, N.C., and Pike repair crews hit the road. Crews have been mobilized for tornados in the Midwest, hurricanes in the Southeast and winter storms all over the eastern half of the country to repair and replace transmission lines. Pike has seen storm repair revenues of about $100 million a year since 2006. If the company fixes the Grid, Pike makes money from engineering and construction. If the powers that be do not do it soon, the company will continue to see strong revenues from storm and emergency repairs to the grid. I intend to hold this stock until the day it becomes a momentum darling during an infrastructure boom, and the valuation is so rich I can't stand it anymore.
Pike is one of my favorite stocks that I believe will eventually benefit from the failing electrical grid but I am looking into others. Generac Holdings (GNRC) has seen its stock leap higher in recent weeks as strong residential generator sales in the wake of the storm drove sales and profits higher. Quanta Services (PWR) offers electrical, natural gas and fiber optic construction and repair services. Emcorp Group (EME) is another electrical and mechanical contractor that will benefit.
It is time to sit down with the reports and statements to derive a price to buy the equity or other securities of these companies -- then hold on to them and wait for the inevitable massive effort to repair, rebuild and replace the U.S. electrical grid.
