3 Winning Stocks for a Clinton or Trump Presidency

Hillary Clinton and Donald Trump have delivered one point of general agreement: Both candidates know the infrastructure in this country is in a woeful state and is getting worse.

Ballot box painted into national flag - United States
Ballot box painted into national flag – United States

Here are just a few reflections of the crumbling infrastructure in the United States:

  • We have 200,000 water breaks per year in the U.S. In Washington D.C., for example, water pipes average 79 years old. Lead poisoning from drinking water isn’t just restricted to Flint, Michigan.
  • Enough natural gas leaks from our pipeline network every year to power seven million homes.
  • Most of America’s railway bridges cannot handle double-stacked loads.

Failing Report Card for Infrastructure

These type of items are unfortunately quite commonplace when one studies American infrastructure.
The 2013 report card on infrastructure from the American Society of Civil Engineers (ASCE) is not one you’d want to see from your child in school.
Here are the sad results: Energy – D+, Transit – D, Roads – D, Rail – C+, Ports – C, Inland Waterways – D-, Bridges – C+, Aviation – D, Wastewater – D, Levees – D-, Hazardous Waste – D, Dams – D, Drinking Water -D. The cumulative grade was D+.
The reason behind the sorry state of U.S. infrastructure is quite simple. . . a lack of spending on it by the U.S. federal government.
Last year, U.S. public capital spending (including infrastructure) was just 3.4% of GDP. That figure comes from the president’s Council of Economic Advisers; it’s the lowest in 60 years! Net of depreciation, capital spending’s share of GDP was a mere 0.5%.
Spending at the state and local levels on infrastructure isn’t much better. It’s at 30-year lows.

The Consequences

A look at a few specific infrastructure categories helps portray an accurate picture of what is needed.
For roads, bridges and transit alone, the Center on Budget and Policy Priorities says, the U.S. faces a funding gap of $1.7 trillion.
And just this year, after studying the state of U.S. bridges, the American Road & Transportation Builders Association found that 58,495, or 10% of all bridges, were “structurally deficient.”  The cost to bring all the these bridges up to standard would be more than $106 billion, the ARTBA said. That is six times what was spent on such projects in 2010.
That lack of spending in the “right” places does have its consequences.
The American Society of Civil Engineers went on to say our country’s GDP would take a $4 trillion hit between 2016 and 2025, thanks to lousy infrastructure.
It also said there would be 2.5 million fewer jobs in 2025. The average American household, according to the ASCE, will take a $3,400 a year hit from our infrastructure deficiency.
The Council of Economic Advisers adds that American businesses end up spending an additional $27 billion annually because of our infrastructure. Businesses are forced to carry extra inventory in extra distribution centers. That’s not to mention freight costs that are higher than they should be.

Infrastructure Stocks That Will Benefit

Hopefully, whichever candidate is elected will follow through on the promise to boost infrastructure spending. Our country needs it.
If that does happen, there a number of companies that will be the beneficiaries of the spending.
Here are just three of them.
First and foremost for me among the infrastructure stocks is Vulcan Materials (NYSE: VMC).
Vulcan is the largest supplier of construction aggregates like sand, gravel and crushed stone in the United States. Public sector contracts already account for half of its product shipments.
Aggregates is a business with rather high barriers to entry. So, in effect, VMC is a quasi-monopoly. It has a 15+ billion ton reserve base, which should last 75 or more years.
Shipments last year rose to 178 million tons of material. That is still 43% below what VMC sees as “normal” demand over the next few years. That “normal” figure will get a huge boost if infrastructure spending is raised markedly. Add to that the fact that VMC has raised its prices on average by 5.1% annually since 2004.
Company management has focused on cost-cutting and debt repayment the past several years. It paid down nearly $800 million of its debt and increased its operating margin to 18% from just 7% in 2013.
If Vulcan is right in its projection on demand, its EBITDA earnings should rise from $944 million over the past four quarters to $2 billion. That should boost its stock even further than the 33% gain it experienced the past 52 weeks.

Infrastructure Stocks: Construction Equipment

Next on my list is Caterpillar (NYSE: CAT), which is the biggest construction equipment player in the United States.
If the U.S. government gives a major boost to building roads, bridges, or whatever, a lot of equipment from CAT will be used.
Another big piece of CAT’s business is in mining equipment. And it looks to me as if the mining industry has hit bottom. Prices, even for many metals like zinc, are on the rise.
This combination should boost its stock price, And the current 3.5% yield will support it.
Finally, the engineering companies should benefit too.
One example is Aecom (NYSE: ACM), the largest design and architectural firm in North America. For the seventh consecutive year, it was named No. 1 by Engineering News Record in its Top 500 Design Firms category.
Aecom is involved in many infrastructure segments such as transportation and water. And its management services division already has loads of government contracts, including for cybersecurity.
Its recent stock price drop, after being targeted by short seller Spruce Point Capital, merely gives investors the opportunity to buy the stock on the cheap.
Bottom line:  November’s election is likely to deliver good news for infrastructure-related stocks, no matter which presidential candidate succeeds.

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