Rebuilding American Transportation Infrastructure
Stephen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The American Society of Civil Engineers released a 2009 Report Card on all facets of American infrastructure. The results all around were pretty damning, especially for roads and bridges. The report estimated a five-year funding shortfall of $550 billion, more than 155% of the predicted spending over that period.
A deteriorating and inadequate system of roads has significant consequences. What likely hits close to home for most of us is the cost of vehicle repair or accidents attributed to deteriorated roads. The National Transportation Research Group estimates that driving on roads in need of repairs cost motorists a total of $67 billion a year in extra vehicle repair and operating costs. Additionally, road conditions are a significant factor in over one-third of highway fatalities.
Beyond the tangible costs of damage to vehicles due to poor roads, there is the cost of congestion and delays because our roads cannot handle the volume of traffic. Since 1990, our population has grown 25% and vehicle travel has increased 38%, while new road mileage has increased a paltry 4%. Traffic congestion costs Americans $101 billion a year in additional fuel costs and wasted time. The average American loses 34 hours a year in traffic.
These statistics clearly point out the growing need for significant capital investment in roads and bridges. Outside of all the costs detailed in the prior paragraph, the prospect of major job creation from this increased investment will be a major motivating force in gaining legislative support for the additional spending. The Federal Highway Administration estimates that for each $1 billion of federal highway spending there are nearly 28,000 jobs created annually. The Bureau of Labor Statistics recently estimated the unemployment rate in construction to be at 14.2%, a big improvement from 2009 and 2010 levels (19-20%) but still far above pre-crisis levels (7-9%).
Investment Ideas
You can't repair roads without asphalt, and CRH plc (NYSE: CRH) is the market leader in asphalt in the United States, as well as being top three in construction aggregates and readymix concrete. The company boasts a 65% exposure to the American construction materials sector. As a European company it has been beaten down over the last several years, but has remained solidly profitable with strong free cash flow and currently yields 5.3%.
Caterpillar (NYSE: CAT), the heavy equipment giant, is another good option for the opportunistic investor. An increase in federal spending would encourage civil construction companies to invest more capital into their equipment inventories to handle the extra work. A good alternative is Deere & Company (NYSE: DE), which may be more well known for their iconic agricultural equipment despite their Construction and Forestry segment doing over $5 billion in annual sales.
Finally, for the cynics out there who have lost faith in Congress's ability to take on major legislature and believe things will get worse before they get better, there are ways to profit from all that unnecessary spending caused by poor road conditions. AutoZone (NYSE: AZO) and Advanced Auto Parts (NYSE: AAP) are two vehicle maintenance or repair parts companies that certainly would benefit from a continuing trend of underfunding our transportation infrastructure. The average age of cars on the road in the United States has reached an all-time high of nearly 11 years, which is yet another reason to think these two will perform well in the future.
As a Virginia resident I have firsthand experience of the financial burden of driving on poorly maintained roads and the frustration of sitting in hours of traffic on a two-lane interstate that was somehow planned to support the massive inflows and outflows of weekend visitors to popular summer vacation destinations. At least now I can recoup the loss from replacing that pothole-induced flat tire by investing in some quality companies.
drfrank1 owns shares of CAT. The Motley Fool has no positions in the stocks mentioned above. 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.If you have questions about this post or the Fool’s blog network, click here for information.
