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Trump Infrastructure


The American Society of Civil Engineers issues a report card every 4 years on the condition of the nation's infrastructure. The most recent grade (2017) is D+. Monday President Trump proposed a new $1.5 trillion infrastructure plan including a $200 billion contribution from the federal government over the next decade designed to encourage $1.3 trillion in spending by cities, states and the private sector.

While it is unclear whether Congress will approve the president’s plan, investors are encouraged, especially those investors who would like to place their bets in that sector. The result has been no real immediate boost in infrastructure stocks. Analysts, however, expect the long-term benefit to be positive.

Related: BEHIND THE BUDGET DEAL

The Burden On States

Trying to leverage $200 billion into $1.5 trillion involves attracting a lot of local, state and especially private money. This will result in a funding formula that puts 70% of emphasis on the ability to find funding about 5% on “economic and social returns” on the investment.

In practical terms states may feel pressured to build an access road for a luxury development – with help from the developers – instead of repairing a tunnel or bridge that is not able to attract sufficient private funds. Elliott Sclar, professor of urban planning and international affairs at Columbia University told The New York Times, “Private investors will become the tail that will wag the dog, because they’ll want projects that will give returns.”

Asset Sale

Another part of the formula comes from the White House budget which gives federal agencies the authority to sell assets that would be better managed by state, local or private entities. The could result in assets like the Ronald Reagan Washington National and Dulles International Airports being sold to private owners, according to the NYT.

The pressure will be on to come up with the $200 billion in federal funding since the budget has already potentially created a large deficit, not to mention the impact of tax cuts passed earlier. Neither Republicans nor Democrats (for their own reasons) are likely to go only with either the spending required, or cuts suggested to offset the cost of this infrastructure plan.

Related: THE TAYLOR RULE AND INTEREST RATES

Companies That Could Benefit

Assuming funding issues can be resolved, companies in the infrastructure space could benefit as could investors who buy shares of stock issued by those companies. Four companies that have been identified as poised to be winners include:

AECOM (NYSE:ACMC), a company in the business of designing, financing, building and operating infrastructure assets for federal and state governments and businesses. The company has a $5.56 billion market cap and 2017 revenue of $18.2 billion making it well positioned to handle a large number of new government projects.

Vulcan Materials Company (NYSE:VMCC) handles gravel, limestone and sand, all important to any building project from bridges to roads to plants. As the largest producer of these materials, Vulcan stands to achieve massive gains, especially given its market cap of $16.82 billion and generated annual revenue of $3.59 billion in 2016.

Martin Marietta Materials, Inc. (NYSE:MLMC) is involved in the cement and asphalt side of construction and has a strong presence in states with booming construction economies. Martin Marietta’s market cap of $13.37 billion and $421 million net income last year put it in a favorable position for future projects.

Quanta Services, Inc. (NYSE:PWRA) is a specialty contractor providing infrastructure services primarily to the oil and gas and electrical power industries. Quanta also provides oil and gas pipelines and renewable energy infrastructure, including onshore and inland hydroelectric projects. On the financial side, Quanta has a market cap of $5.5 billion and posted annual revenue of $7.65 billion in 2016.



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