Invest in America's Infrastructure and Future Growth
Joshua is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Recently the American Society of Civil Engineers released a report highlighting the funding gap in America's infrastructure. Surface transportation, wastewater and water services, and inland waterways and marine ports have funding gaps from 49% to 67% relative to their 2020 needs. Electricity and airport infrastructure are better situated, but they still face funding gaps from 15% to 28%. Fixing America's infrastructure budget should be a national priority otherwise the nation could face a $3.1 trillion dollar loss in GDP by 2020 and a $2.4 trillion loss in consumer spending. The United States already suffers from low consumer demand, high unemployment, and slow growth. There is a clear and present need to improve the United States' infrastructure to prevent any further drag on the economy.
Electricity & natural gas
Wisconsin Energy (NYSE: WEC) offers electricity generation services and natural gas to a number of areas in Wisconsin and Michigan. The company continues to expand their operations with a biomass fueled power plant that is scheduled to be completed by the end of 2013. They have also developed renewable energy resources with their 162 MW wind farm in Fond du Lac County. Their growth in renewables will continue over the coming decades. Coal and natural gas make up the majority of Wisconsin Energy's generational capacity with renewables only contributing .7% of 2011 generation capacity. Their total debt to equity ratio of 1.21 is not excessive and their payout ratio of 48 is reasonable. Their P/E ratio of 15.9 is not low, but Wisconsin Energy has provided EPS growth of 11.7% over the past 5 years and dividend growth of 18.8% over the same period. This utility is well run and offers a good way to invest in part of America's basic infrastructure.
TransCanada (NYSE: TRP) is the sponsor of one of the most important and politicized infrastructure projects in America; the Keystone LX pipeline. There is not enough pipeline capacity to bring oil from Alberta's oil sands down to America's southern refineries. Right now companies are forced to use less efficient and more expensive railroads while storage facilities in Cushing, Oklahoma are facing record levels of inventories. TransCanada is North America's third largest natural gas storage operator, the biggest private sector power generator, and the owner one of North America's major oil pipeline systems with a 1.4 million bbl/day ultimate capacity. The company has a total debt to equity ratio of 1.24 which is healthy compared to industry peers. TransCanada offers a yield of 3.6%. From 2000 their dividend has offer a healthy CAGR of 7%. This utility is a solid company that offers a simple way to invest in America's and North America's infrastructure.
Sterling Construction (NASDAQ: STRL) is a small construction firm with operations throughout the Southern parts of the U.S. Over the past year their stock price has suffered. This is partly due to write-downs in the last quarter of 2011. Revenue growth has remained strong over the past year and slowly the stock price is starting to come back. The company has almost no debt with a total debt to equity ratio of .05. Based on 3Q 2012 numbers, Sterling has consistently grown their backlog from 2005 to its currently level of $704 million. With growing revenue and the gradual recovery in the broad economy it is reasonable to expect that their EPS should return to the $1.00 - $1.50 range posted in the 2006 to 2010 period. Sterling is a good small cap to watch and a simple play on the construction industry.
American Tower (NYSE: AMT) leases tower space for telecommunication companies. The growth of smart phones and increasingly data intensive users has forced companies to grow their networks. The company recently transformed itself into a REIT which has helped to increase its popularity with investors. Their stock price has increased and now their yield rate is 1.2% with a payout ratio of 57. Their total debt to equity ratio of 2.11 is comparable to Crown Castle International's ratio of 2.85. Future growth in the American market is not expected to be spectacular as technology continues to shrink and companies learn to do more with the same amount spectrum. American Tower Corp is very expensive with such a low yield, though it is a good infrastructure play to keep on the watch list. If the price comes down then it will be worth a second look.
The world is a competitive place and the United States needs to put forth effort to remain one of the world's super powers. Maintaining modern infrastructure is an important part of this puzzle and the latest report by the American Society of Civil Engineers shows just how much further the nation has to go. The companies mentioned here offer different ways to play the growth and repair of America's economy.
MrCanadian1 has no position in any stocks mentioned. The Motley Fool recommends American Tower . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!