What would happen if we actually got a federal infrastructure bill, like the trillion dollar one that Bloomberg reported that President Donald Trump is considering?
First, we aren't really sure whether the president is going to push for one, or if he isn't. Eamon Javers from CNBC says there isn't a chance that this could happen.
But, for a moment, let's consider what a trillion dollars would mean for infrastructure. Immediately, we would see a surge in orders for Vulcan Materials (VMC) and Martin Marietta Materials (MLM) , the two biggest aggregate companies. Those are the companies that are needed to build roads. I think both of these companies are very, very strong and have always done well, even with just a few orders from state governments. I can't believe how much they could possibly make if the federal government would decide to fix our roads nationwide, because both can perform in large areas of the country.
Of these two, I prefer Martin Marietta Materials. They blanket the South and have the ability to go north and east and even far west, although their exposure there is weaker. I like them, because if you don't get an infrastructure bill, you will still do very well just getting state projects, as well as projects involving home building. Remember, the big business in aggregates away from roads is housing unit developments and housing's been as hot as I have seen in ages.
I know that there are always going to be buyers of U.S. Concrete (USCR) and the shares are up 20% Tuesday. I don't trust this one at all. It has been a serial disappointment and has cost investors a great deal of money each time there's even a whiff of the possibility of an infrastructure bill. And then it slips right back when there isn't one.
Without an infrastructure bill, U.S. Concrete will become hostage to gigantic office projects and bridges. While I do think we are coming out of a recession, I don't expect those kinds of projects to be announced and that would mean that U.S. Concrete goes back to where it was before this chatter.
I know that people love to buy the stock of Caterpillar (CAT) , and I get that. But Tuesday's six point run up at a time when Caterpillar's biggest business, oil and gas, is still very much hurting -- witness Chesapeake's (CHK) bankruptcy -- make me feel that you need a bill and you need it fast. I'd rather not have to make that bet given that business is not strong, according to all recent reports. Don't count out a China bailout, either. Not in this environment.
Then there's the truly logical pick: Nucor (NUE) , which makes the best infrastructure there is. This one could be a buy no matter what, even up almost three bucks as this $44 stock is down 20% for the year. I had been eyeing this as a stock to own for my charitable trust given that we sold it in the sixties not that long ago and it collapsed when the recession hit. It's got a solid 3.6% yield, too.
Finally, the Bloomberg report mentions the president wants to build out the internet including 5G. We recently had Fastly (FSLY) on, a company devoted to making the internet work best for you and it put out a disturbing study that shows that 22.3% of connections in lower income brackets "still do not have acceptable internet performance for work and school," something that could be one more hindrance to the success of the poor. As Fastly founder Arthur Bergman points out: "We hypothesized that internet performance would vary by income, but we were surprised to see such a stark stratification."
The internet build out may not make any company that much money, but I think we can all agree that it would be a fabulous investment over time.
