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President Barack Obama Portfolio
During his weekly radio address on December 6, 2008 President-Elect Barack Obama added more details to his plan to create more than 2.0 million jobs once he takes over the White House. The kind of effort and money that will be tossed at the New New Deal will be well north of $1.0 trillion perhaps $2.0 trillion if early results are sluggish. The following statements from that address should mean incredible investment backdrops in the right stocks.
"Making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s."
"Make public building more efficient by replacing old heating systems and installing efficient light bulbs."
Historic Precedent
It's all about infrastructure to be sure and that means finding companies that will benefit from fixing roads and bridges. The thing is this isn't just about such repairs in the United States but instead this is going to be a big time global solution to slower economic growth and declining jobs. Isn't it interesting that the so-called "bridge to nowhere" played such a prominent role in politics over the last couple of years but now we look to bridges as the epicenter to jumpstart the economy and job market.
Of course it is repair and maintenance of bridges that will be the focal point although the FY08 and FY09 federal budget provided for $41.2 billion in highway investment that is sure to help new building, too. There are 597,404 highway bridges in the United States and it is estimated that 12% or 1 in 8 are structurally deficient.
According to an article in USA Today in order to repair this situation it would take an investment of $9.4 billion a year over a twenty-year stretch according to the American Society of Civil Engineers. Moreover, in 2007 Ernst & Young reported it would take $1.6 trillion to repair the nation's bridges. Pennsylvania with 26% (31,704 bridges) percentage of its bridges that are structurally deficient and Texas with 50,474 has the largest amount in total in that category. It seems like the ultimate win-win situation. On August 1, 2007 the bridge over 1-35W in Minnesota collapsed. 13 people died and 145 were injured in a horror that brought to forth the notion that America's bridges were crumbling. I'm not sure that really is the case, however, the majority of roads and bridges date back as far as the New Deal.
The interstate highway system, which I have read is the most expensive public works project ever, began with the passage of the Highway Trust Fund Act of 1956 under President Eisenhower. So it stands to reason our roads, tunnels and bridges are old enough to deserve makeovers. Furthermore, technology has come a long way with respect to steel, high performance asphalt and concrete along with other advances in machinery and engineering. To be sure the nation must err on the side of being overly cautious but makes on wonder in the end how much money could be poured into this situation before there is massive waste.
 Of course that bridge over I-35W was labeled structurally deficient since 1990 so it's a great thing this problem will not be ignored anymore. I'm not sure how jobs will be allocated and how the division of management and labor will be divided among the private public sectors. Then there is the role of state governments, too. How are people going to be trained so quickly to do complicated jobs? This is a dilemma seen in the aftermath of Hurricane Katrina when so many felt jobs were going to the good old boys instead of residents of New Orleans. Let's face it, this project while well-meaning is mostly about generating jobs immediately. The pay is good for those with experience but it will not be so great for the person that used to make $35.00 an hour on an assembly line.
- Entry-level Engineers with BS and 2-years experience start at $35,000+
- Engineer Project Analyst start in range of $41,800 to $54,725
- Engineer Design Managers are in the range of $45,470 to $64,230
Then there is the problem with the fact there are fewer people with the skills needed to get the job done. In 2000 there were 906 bridge, tunnel and elevated highway contractors in the country down from 1,171 in 1997. From an investing point of view it's tough because many of the powerhouse names in the industry are privately held. Peter Kiewit & Sons and Skanska is perhaps the number one and two players in the space to go along with privately owned Bechtel.
Another big problem has been past mismanagement of the Highway Trust Fund. While there is no doubt the sharp decline in driving this year was due to crude oil which surged in the spring and summer of 2008, there has always been a sense that funds were poorly handled. Then there are the billions siphoned off the HTF into the General Fund over the years. Currently the Highway Trust Fund is funded by an 18.4 cents federal fuel tax on gasoline and 24.4 cents on diesel fuel stimulus. Well guess what folks, when all these bridges and tunnels are fixed and there are many more roads available for us to see the nation (much to the chagrin of environmentalists) it is going to cost a lot of money for upkeep. Already Congress wants more then the $286.0 billion allotted for Transportation and Infrastructure and members have discussed hiking the gas tax 100% in order to pay for the new tab of (drum roll, please) $1.0 trillion.
This new gas tax will hit everyone in the wallets and while it may force more people into using mass transit (an intended consequence) the fact is one of the unintended consequences will be to make the roads the province of the rich in urban areas and the highway to economic hell for the masses everywhere else.
Nobody is fighting infrastructure spending as a stimulus. The entire planet has jumped on the bandwagon as it's worked before from the New Deal to rebuilding Japan and Germany after World War II. It is only a first step and one that will be rife with potholes (I couldn't resist), fits and false starts and mismanagement. (Is it politically incorrect to say the Mafia is going to make out like bandits (there I go again) from all these massive and rushed construction deals and forcing unions on businesses through non-secret ballots and favorable political pressure?) The point now is how the average investor can benefit from the largess.
2009 Infrastructure Portfolio Picks
 It is all about the folks that make the picks and shovels and that means its all about Ingersoll Rand (IR) when the big building boom begins. Of course these days it's all about jackhammers and other heavy equipment tools that will help construct and repair the nation's infrastructure. The street is looking for earnings next year of $2.85 down from the consensus of $4.31 just three months earlier. In the meantime the company has beaten the consensus in three of the last four quarters and we believe next year's estimates are too low.
The stock is breaking out through $15.00 and we think the share price touches $22.00 over the next 12-months.
 Builders of bridges and tunnels are going to be big time winners in 2009 and 2010. That means Fluor (FLR) and URS Industries (URS). Fluor is our absolute favorite because it's an extremely well run business and the stock is oversold but also has great upside potential. A lot of Fluor's business comes from the energy sector and that spending could slow but it has a significant presence in construction and engineering and should be able to reap enough business and bring those riches to the bottom line.
FLR currently changes hands at a price to book ratio of 0.77. The stock makes a major breakout through $45.00 and has room to $55.00.
URS breaks out through $38.00 and has room to $48.00 over the next year (but maybe sooner).
 Texas Industries (TXI) makes cement, aggregate and concrete. Business is horrible and the earnings results bear that out. Still the stock looks like a buy because this company is going to be a big winner. Insiders are beginning to buy (last two insider transactions were two buys for 52,000 shares). The shorts are also hammering the stock as 21% of the float is short. The stock breaks out through $31.00 and doesn't have a lot in the way of a move up to $40.00.
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I think these ideas along with several others will be big winners. I think the way to play them will be to create a core position and to also trade them buying on dips and selling into strength. Listen, a lot of people have been crushed in 2008 because they didn't take profits on solar, wind, steel, cooper, and agricultural plays. The only frustration I have from mentioning stocks on television is that I'm not positioned to tell people when to take profits. I've seen where people have been upset at me on websites because of an idea I mentioned that is currently down. Of course they never mention that idea may have been higher…significantly higher.
Be that as it may I cannot control your greed or bad habits if you are not a subscriber.
My team and I cannot help educate you, help you with patience; help you with portfolio management unless you are a paid subscriber. Even the ideas I have outlined above will make some people money and lose money for others. The fact is investing is an emotional challenge for the majority of people. We actually spend a lot of time re-training investors and helping them shed bad habits. I have been at this a long time and I know all the self-defeating habits of self-directed investors. Chasing hot stocks or sectors, angst over money left on the table, a need for cash fast, an inability to mentally absorb losses and many more.
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You're Never Going to Get Your Money Back Just Waiting for the Recovery!
If you think you are going to just sit on your current portfolio and get your money back then it's going to be a long time before you'll even break even in the market - maybe years, maybe never - if you don't take a proactive approach.
Let's face it a lot of investors never broke even after the Internet Boom collapsed because those stocks they were holding either went out of business or continue to languish. This time around companies with better pedigrees have been crushed so it's easier to rationalize that they will come back.
I think that assumption is completely off the mark.
I began my career on Wall Street learning from master buy and hold investors. I have come to believe that it's not that simple anymore. I started Wall Street Strategies in 1991 to help professional and individual investors through fundamentally driven buy and hold methods of investing.
There is still a place for that but there will also be great opportunities to benefit from a market that could be stuck in a trading range for years.
Charles Payne
Founder & CEO
Wall Street Strategies
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