Investors have already built in a lot of expectations regarding the presidency of Donald J. Trump. As with all past presidents, many will be left disappointed.
In my view, however, there is one particular sector that will not disappoint and will be the one to benefit the most from a President Trump.
That sector is infrastructure.
Trump and Infrastructure Stocks
Think about it. What has been the one consistent trait of Trump throughout his whole life?
Trump has built things. The only difference now is that instead of building hotels, casinos and golf courses he plans to rebuild our nation’s deteriorating infrastructure.
Our nation needs Trump to be successful in infrastructure after many decades of neglect from politicians. Most of the benefits of infrastructure investment show up years down the road, which is of little concern to most politicians who are only concerned with the next election.
The evidence is plain to see. Last year, U.S. public capital spending (including infrastructure) was just 3.4% of GDP, 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 results from this lack of spending are clearly seen in the 2013 report card on our infrastructure from the American Society of Civil Engineers (ASCE). The report card was terrible.
Here are the grim details: 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+.
Of course, there are some short-term positives too for the economy as the infrastructure is built. That led the OECD to forecast the U.S. will be the fastest growing advanced economy in 2017, with growth pegged at 2.3%.
The chief economist at the OECD, Catherine Mann, told the Financial Times, “[The Trump fiscal effect] is an important part of our projection.”
Infrastructure Stocks: Broad Choices
Fortunately for investors, there are an incredible number of possible investment choices and infrastructure stocks that will benefit from an infrastructure build-out under Trump. Here a just a few of them.
The first pick is an exchange-traded fund – the iShares Global Industrials ETF (NYSEArca: EXI). Among its top 10 positions are blue chips that are involved in many phases of the “Trump sectors” of infrastructure, defense and transportation.
These include General Electric (NYSE: GE), 3M (NYSE: MMM), Boeing (NYSE: BA), Honeywell International (NYSE: HON), Union Pacific (NYSE: UNP), United Technologies (NYSE: UTX), Lockheed Martin (NYSE: LMT) and Caterpillar (NYSE: CAT).
Another sector to scour for prime infrastructure stocks is the materials and metals space.
Here one should consider aggregates suppliers such as Vulcan Materials (NYSE: VMC) and building materials suppliers including Eagle Materials (NYSE: EXP). And don’t forget a copper miner like Freeport McMoran (NYSE: FCX) or a zinc miner like Teck Resources (NYSE: TCK).
And, of course, among infrastructure stocks there are a raft of project engineering companies including Fluor (NYSE: FLR) and Aecom (NYSE: ACM).
One small-cap ($958 million) engineering company that caught my eye is Argan (NYSE: AGX). It is heavily involved in the heavy construction industry and specializes in the engineering and construction of natural gas power plants.
Anyone familiar with the power industry knows that of the big move by utilities away from coal-fired electricity generation and toward gas-fired power.
With Trump pushing for more domestic energy production, this trend will only accelerate.
So while a President Trump may let down those that voted for him in some areas, the best bet – with the least chance of disappointment – is the broad infrastructure sector, and infrastructure stocks. Invest accordingly.