Now that promising coronavirus vaccines have been developed and widespread vaccinations are likely in 2021, the market’s emerging rotation to cyclicals and value stocks is reflecting increasing confidence in industrials.
The end of the pandemic is now clearly in sight, allowing investors room to consider the potential for federal spending to fix the nation’s deteriorated infrastructure.
For many advisors, preparing for this will involve far more than just buying the usual suspects early. Thorough preparation also requires an up-to-date mindset grasping the reality that this is not their father’s infrastructure. Traditional infrastructure is becoming increasingly techy, and some tech is now a form of infrastructure in itself.
The subject of federal spending on traditional infrastructure is about as worn (without action) as the nation’s crumbling roads and bridges. Yet the decay has become so severe that it will likely compel bipartisan Congressional attention in 2021.
Cross Your Fingers While Crossing
After years of congressional gridlock, the state of decay has become critical. Regarding bridges alone, for example, according to the American Road and Transportation Builders Association, if the nation’s structurally deficient bridges in 2018 had been placed end to end, they would have stretched from New York to Miami—and little or nothing has been done to improve them since. At the time, though more than 9% of bridges were structurally deficient, Americans had to cross them 174 million times a day. The average age of these bridges is 69 years.
Of course, there’s much more to our crumbling national infrastructure than rickety bridges. Highways, airports, train stations, water systems and other public works plants are all far behind repair and inspection schedules, and many are in serious need of attention.
Engineering firms and construction companies likely to get work from congressional legislation are tough to pick, so it makes more sense to focus on suppliers whom all these firms must patronize. Some vendors likely to benefit are readily apparent. These include:
• Materials: U.S. Concrete, Martin Marietta Materials, Nucor (steel), U.S. Steel, Steel Dynamic, United Steel & Aluminum, Alcoa.
• Manufacturers of earthmovers and heavy equipment: Caterpillar, Gencore.
• Renters of short-term-use equipment: United Rentals (widely associated with the oil industry but also has infrastructure markets).
• Railroads to haul stuff: Norfolk Southern, Union Pacific, Kansas City Southern.
Investment in infrastructure has already picked up. Between Nov. 2 and Nov. 20, shares of infrastructure ETF PAVE rose 12.45%. And though Caterpillar’s gains over the past few weeks have been more muted, this dividend aristocrat rose 23.51% percent between Aug. 14 and Nov. 20—perhaps more from favorable outlooks in investment newsletters than from any early anticipation of a federal infrastructure bill.
As the market’s wont is to invest incrementally more with each news-flashed benchmark, an actual feasible infrastructure bill would doubtless nudge the category upward. Moreover, many infrastructure stocks are still languishing.