These Companies Could Benefit from Infrastructure Priorities
Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The world has a lot of construction needs at the moment. Beyond housing construction, governments, and large corporations around the world are backed up on infrastructure development. According to the McKinsey Global Institute nations around the world are going to need $57 trillion worth of infrastructure construction by 2030 to keep pace with global GDP growth.
That is a lot of construction.
It's spending we could use, too. I'm usually a fiscal discipline sort, but infrastructure – the building of roads, bridges, power networks and so forth – is actually an investment. Those things being built gives the rest of us in the business world the opportunity to make some money. Without a reliable means of moving goods, services, and information around the country and the world, we'd just be mom and pop shops with a local clientele.
The McKinsey report also points out how infrastructure development is another form of investment. The modernization of existing infrastructure can lower costs for governments, perhaps by as much as $1 trillion per year going forward. Nothing to sneeze at, I admit.
So who benefits? Well, since you're reading this column, you can. The question is always, “How do we directly benefit from an identified global need”? It's a matter of identifying the correct investments to make to take advantage of the trend.
KBR (NYSE: KBR)
Formerly known as Kellogg, Brown and Root, KBR is perhaps the most famous major construction firm in the world, thanks to its affiliation with former U.S. Vice President Cheney during its period as a subsidiary of Halliburton. KBR provides engineering and construction services into a number of different sectors around the world. The firm has a lot of know-how and well-developed marketing inroads to bid and win on truly large-scale projects. It wouldn't surprise me if the managed to take a large piece of the coming infrastructure business. The firm's stock took a hit when world governments cut back on spending in the wake of the financial crisis, dropping all the way to $10.45 on Nov. 21, 2008, but now it's up around $30.00. It's also reliable, having paid a 5 cent per share dividend, even through the worst of the recession.
Fluor (NYSE: FLR)
All of these firms are going to be global engineering firms, but I think very highly of Fluor. The firm has consistently been top-rated as an engineering and contracting firm by analysts and there's no reason to think that won't continue. It's also the largest market-cap on this list, at more than $10 billion. Fluor should do well with a coming infrastructure boom. Since the recession hit the firm's price has more than doubled, going from $29.277 to ~$63.00. Last year it raised its dividend from 13 cents per share to 16 cents per share for a yield of just over 1%. That's not a great yield, but it's something and the growth should make up for it.
Jacobs Engineering (NYSE: JEC)
Jacobs is another firm that's well-positioned to provide the large-scale work that governments will be bidding out. This engineering firm has offices around the world and isn't shy about going after and winning contracts with energy, government and construction firms. In late 2011 Jacobs acquired KlingStubbins to enhance its design capabilities on top of its engineering skills. A useful acquire for a firm that wants to grow. The firm's stock has had a good six months or so. Having seen a bit of a dip the first half of 2012, it's grown from $34.05 at the beginning of June to ~$46.05. I do wish it paid a dividend, though. Keep that in mind.
Quanta Services (NYSE: PWR)
Quanta is a bit of an oddball in this group, but one I wanted to mention. Quanta, in addition to the standard bit of providing services to the energy industry, has a focus on telecommunications and data networks. This is going to be a huge upgrade over the next few decades as more fiber optic networks are laid around the world. Older copper-based communications networks are on the way out and those countries that use them will replace them with fiber optics. Countries new to telecom will go with fiber optics from the start. Quanta is well established and can ramp up those needs quickly. The firm's stock, like everyone's, bottomed out in Nov. 2008 at $11.67 and closed ~$28.00 recently. Again, no dividend, so be prepared to just watch the share value.
Infrastructure improvement is one of the ways that governments around the world can bring about economic growth. The need is there and it's being recognized by everyone. It shouldn't have been a surprised that when the U.S. went on its infrastructure kick in the 50s and 60s the economy grew enormously. So the next few decades should be good ones for companies that can provide the services needed. It can be good for you, too, if you take advantage of the trend. Good luck!
Nate Wooley has no position in any stocks mentioned. The Motley Fool owns shares of Fluor. 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!