Companies that make heavy machinery as well as those with other involvement in the infrastructure space are increasingly unsure about their future under a Donald Trump administration.
Initial optimism is being replaced by impatience and uncertainty. The president pledged a $1 trillion investment in infrastructure but has offered little in the way of concrete plans showing how this investment would be handled.
Stocks Already Up
There are positive signs as well. Companies that could benefit from a rise in construction have seen their share prices rise considerably since Trump’s election.
This includes machinery builder, Deere & Co. (NYSE:DEC), up 24%, crane-maker Terex Corp. (NYSE:TEXB), which has seen a 32% boost and construction management firm AECOM (NYSE:ACMB) which is up 30% since the election.
Not The Highest Priority
According to Trump administration budget director, Mick Mulvaney, infrastructure isn’t the most urgent priority. In fact, according to Mulvaney, infrastructure comes in at No. 3 in next fiscal year’s budget, behind health care and tax reform.
Part of the philosophy behind that approach is that by accomplishing regulatory reform first the government will get “more bang for the buck” when it does finally get around to a comprehensive plan that includes investment in infrastructure.
Regional Versus National
The White House budget proposal to date takes infrastructure funding from various federal agencies and puts them in an executive branch infrastructure plan. This plan lowers or cuts funding for projects deemed to have more regional than national benefit.
Types of national projects more likely to be funded include those for the national power grid, cybersecurity efforts and "environmentally responsible development of energy on public lands."
An Unlikely Candidate
With attention focused on construction and materials, one unlikely candidate has emerged – Apple Inc. (NASDAQ:AAPLB). This Silicon Valley giant, of course, doesn’t build heavy equipment or forge steel. It does stand to benefit via the method President Trump has identified as how he will pay for his massive infrastructure project – tax reform.
Apple has billions of dollars parked overseas and can’t or won’t repatriate them due to the high taxes that would be levied. Trump has proposed a repatriation tax as low as 10% followed by permanent corporate rate as low as 15 to 20% (down from the current rate of 35%).
Having It Either Way
In a climate of infrastructure uncertainty, two stocks mentioned by CNBC’s Jim Cramer also deserve mention. EMCOR Group Inc. (NYSE:EMEC) and MasTec Inc. (NYSE:MTZB) represent companies that could do well if Trump gets his way and a massive infrastructure bill is approved. They could also be successful with an infrastructure push.
That’s because both companies work in the oil and gas space according to Cramer. A turnaround in oil and gas would add to the corporate bottom line above and beyond involvement in any infrastructure involvement.
EMCOR, which posted weaker than expected full-year guidance, has shown growth in nonresidential construction. MasTec also has involvement in communications and should gain strength with the advent of 5G.