When various governments began announcing stimulus plans at the end of 2008 many stocks that could benefit from increased spending on infrastructure rallied, but then pulled back with the market in January. In many countries, such as the U.S., packages are still being debated, and even when plans are passed by legislatures in various countries it will take time to implement the programs. This lag effect between proposals and benefits to various companies could make stocks of firms that will benefit from increased infrastructure spending volatile over the next year. I am the equity strategist and editor of Morningstar's InternationalInvestor
newsletter. This newsletter includes a real-money portfolio--the Passport Portfolio--which currently includes four stocks that I think will benefit from increased infrastructure spending. While none of them is currently trading below Morningstar's Consider Buying price, the volatility in their stock prices may provide another opportunity to buy them and I think they are worth keeping on investor's radar. CRH
CRH is a large, diversified building materials group that manufactures and distributes products related to construction. It is headquartered in Ireland, but it operates worldwide. Roughly 45% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) are generated in North America, while 40% are in Western Europe and the other 15% are from the rest of the world. However, the rest-of-the-world portion is growing the fastest due to higher economic growth rates in many of these countries versus those of developed countries' economies, as well as recent acquisitions in China and India, and new plant expansions in Poland and Ukraine. CRH will particularly benefit from its asphalt, aggregates, and cement operations. It is the number-one provider of asphalt in the U.S. and number one in both the U.S. and Canada in concrete products. It is also number three in aggregates and number 10 in ready-mixed concrete in the U.S. In Western Europe it is number one in concrete products and number 10 in cement. Asphalt, aggregates, and cement should all be major beneficiaries of new road and bridge construction as well as other infrastructure projects in the U.S., Western Europe, and to a lesser extent China, as its operations there are smaller. Siemens
Siemens is the second-largest producer of power generators in the world behind General Electric
. However, compared with GE Siemens has a much smaller financial unit, which is a division that has really hurt GE recently. Besides power generation, Siemens has a large operation in building automation and drive technologies for factories. While the government won't be building factories, it will likely provide additional incentives through tax credits to build new or modernize existing factories. In Europe and China, where Siemens is particularly strong, incentives from stimulus packages will likely be provided this way. Siemens also has a renewable energy division that should benefit from subsidies targeted specifically at renewable energy, which has been part of President Obama's stimulus package. While Siemens waits for benefits from various stimulus packages around the world it still has a large backlog of existing projects. Although new orders declined in the fourth quarter, the firm still received more orders than it used in the quarter and total revenues increased 7% year over year. Veolia Environnement
Veolia is the largest water treatment firm and second-largest waste treatment firm in the world. It also has a sizeable transport division. While increased spending for roads and bridges within stimulus packages have received the most press, there are also proposals to spend money on water treatment, sanitation, and transportation, all of which could benefit Veolia. China in particular is planning to spend significant amounts in these areas. ABB
ABB is one of the largest providers of electricity transmission equipment in the world. It is also involved with improving the efficiency of factories' operations. In the U.S., much of the electricity grid is outmoded and in need of repair or expansion. In many other countries there are problems with getting power from where it is produced to where it is used. This is an area that would not only benefit economies now, but would improve efficiencies in the future, making economies more productive. However power is produced, whether fossil fuels or renewable energy, it needs to be transported. Not only should ABB benefit from stimulus packages around the world, but longer term it is positioned extremely well to benefit from emerging markets, particularly China and India, as they modernize and demand more power.
While I expect all of these firms to benefit to some extent from government stimulus packages around the world, I don't know how much they will benefit or when that money may be received. However, I think it may take longer to be received than stock markets expect, which could create volatility and further buying opportunities for these stocks. It is also important to understand that currently, Morningstar analysts are not projecting any benefits from stimulus packages in their models for these companies. So, new contract announcement could cause our analysts to raise their fair value estimates. In anticipation of expected contract wins, investors may want to consider buying with a lower margin of safety than normal in anticipation of increases in fair value estimates.
If you would like to learn more about Morningstar InternationalInvestor
and my other Passport Portfolio holdings, click on the link below.