History Says Enthusiasm About Infrastructure Spending Should Be Tempered

It seems every decade or so there is an effort to do a once in a half-century uplift of the nation's infrastructure. Legislation passes with much fanfare and spurs enthusiasm across the sectors that should benefit from this taxpayer largess. The reality is a lot of spending is wasted or results in non-optimal outcomes. An old curmudgeon like me remembers all the pork projects included in the $217 billion infrastructure package in 1998, including numerous bike paths and upgrades to an interpretive music center. Bridges to nowhere drew a lot of attention from the $286 billion infrastructure package in 2005. And who could forget the lack of shovel-ready jobs created as the result of the $831 billion stimulus package in 2009 that was supposed to target infrastructure to a large degree? I can't wait to see what wasteful projects go viral from the $1.2 trillion package just passed by Congress. Only $110 billion of the latest package is aimed at repairing the nation's aging highways, bridges and roads, which was one of the main talking points behind the bill. Another $66 billion is targeting rail projects, a large portion of which will be allocated to improving Amtrak's Northeast Corridor, while almost $40 billion will be allocated to public transportation improvements. There's not a huge chunk targeting historical infrastructure projects given the massive size of the bill, but it's not pocket change, either. Investors should temper their enthusiasm for how quickly this money will hit the economy. Cities and states will need to prioritize where to spend their booty and then will need to bid them out. Companies that will benefit from this additional spending probably won't see significant dollops of revenues until 2023 at the earliest. Many projects are likely to be held up for many years by environmental reviews. Based on what I have read on how some cities are likely to prioritize their share of taxpayer money, highway construction should see a noticeable bit of love from local governments. Martin Marietta Materials and Vulcan Materials , both of which make materials used in large construction and infrastructure projects, including ready-mix concrete and asphalt as well as sand and gravel products, would seem natural beneficiaries of the infrastructure legislation. The problem is the stock of Martin Marietta is up nearly 50% for the year and Vulcan's shares are up almost 40%. It would seem some of this additional spending might be priced into these stocks at this point. Tutor Perini might be a better alternative. Tutor Perini already receives large portion of its overall revenue from large, government-funded projects. It is hard to see how this legislation does not help its bottom line for many years to come. The shares also have not had the same run-up this year as Martin Marietta or Vulcan. Tutor Perini stock goes for about 8.5x this year's profits compared to roughly 40x for Vulcan. Then there's Sterling Construction , which I mentioned the other day. It provides civil and specialty construction services and should see some extra business from this package. Sterling Construction shares fetch just over 13x forward earnings. The company already does extensive work for regional transit authorities, airport authorities and port authorities. Its bidding department is likely to be very busy in coming months.

History Says Enthusiasm About Infrastructure Spending Should Be Tempered

It could be a few years before construction projects that receive money from the latest federal infrastructure infusion get off the ground.

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