How Investors Can Profit From Trump's Infrastructure Plans
Every time a president uses the word “investment,” there may be an opportunity for stock market profits. The Federal Government spends around $4 trillion each year, so even a tiny slice of the pie can be a major boon to public companies.
President Donald Trump made a campaign promise to build a massive, expensive wall along the Mexican border. At the same time, he promised a $1 trillion investment in infrastructure, notably transportation related, across the United States. With dollars this big moving around, investors may be able to capture some of the profits in their portfolios. Here’s how you may be able to capitalize on these projects, should they come to fruition.
The Border Wall and Trillion-Dollar Infrastructure Upgrade
During the bitter 2016 campaign, real estate tycoon Donald Trump emerged as the leading Republican candidate and promised to build a wall along the Mexican border, which could cost as much as $25 billion, and a massive infrastructure upgrade to the tune of $1 trillion.
It is important to look at the potential economic ramifications of any proposed infrastructure work. Spending a trillion dollars on walls, roads, bridges, dams, airports, and other infrastructure projects do have the potential to put businesses to work and create jobs. While new jobs are a good thing, investors are more concerned with the revenues and profits of the businesses doing the physical work on the ground for this enormous series of projects.
Industries Involved in Major Infrastructure Projects
Some industries have the most to gain from a major series of infrastructure investments. Wall builders, road builders, and airport builders all come from the world of civil and structural engineering, construction, and architecture. The largest firms in those industries are the smartest place to start looking for major investment gains.
Private companies like Kiewit Corporation will get a portion of the work, but there are public companies in the mix as well. Looking to stocks like Argan (AGX), Emcor Group (EME), and Comfort Systems USA (FIX) is a great start. These companies are either directly or loosely related to the types of construction projects that may take place under Trump’s leadership.
Finding Top Government Contractors
The Federal Government releases a report of the top government contractors each year. A quick review will show that the biggest industries for government contracts are defense, energy, healthcare, and aerospace.
Notably missing from that list is construction companies, as they typically don’t land the billions of dollars in funding that defense contractors do. But that may change if some of Trump's infrastructure projects pass through Congress and come to fruition. Historical top construction contractors include Clark Construction Group, PCL Construction Enterprises, Hensel Phelps, Whiting-Turner Contracting, Gilbane, Walsh Group, Balfour Beatty, The Turner Corporation, Mortenson Construction, and James G.
Unfortunately for investors, this list contains only one public company — the London Stock Exchange-listed Balfour Beatty (LON: BBY). The remainder is private companies that remain unavailable to retail investors.
With so many government construction contracts likely going to privately-owned businesses, finding the sweet spot where infrastructure, government contracting, and public companies meet gets a little more challenging. Investors will need to cast a wider net within the construction industry.
So Where Should You Invest?
Someone has to design those projects. Jacobs Engineering (JEC), Aecom (ACM), and KBR (KBR) are all players in this industry that could get a share of America’s infrastructure upgrade projects.
For builders, Granite Construction (GVA) is a major industry mover and shaker with a long list of municipality and state projects on its to-do list. Fluor (FLR) and Sterling Construction (STRL) are also promising.
One area to look for infrastructure-related profits is concrete and asphalt manufacturers. Vulcan Materials (VMC) and Astec Industries (ASTE) are both focused on construction materials. With congested roadways, countless potholes, and aging bridges expect to see demand for concrete, asphalt, and steel. If the border wall happens, that will likewise increase demand for those materials.
This list is by no means complete. There are dozens of additional opportunities across the engineering, construction, and materials space. Casting a wider net to include energy infrastructure and manufacturing businesses, water, and piping companies, and even railroad construction and utilities could lead to portfolio gains as America works to improve its aging infrastructure.
Get Instant Diversification Through an ETF
If you want to invest in a group of infrastructure-related companies at once, you have several options to buy exchange-traded funds, or ETFs focused on these industries.
In the materials sector, the largest player is the State Street Materials Select Sector SPDR Fund (XLB). Vanguard and BlackRock also offer large materials ETFs through their Vanguard Materials Index Fund (VAW) and iShares U.S. Basic Materials ETF (IYM). If you think materials are going to move, you can capitalize on those through a commodities ETF.
To buy into the industrials sector, the Vanguard Industrials ETF (VIS) and iShares U.S. Industrials ETF (IYJ) are great options. To expand your reach a little further, you can invest in the railroad industry to profit from moving all of those industrial goods and materials around the nation. The iShares Dow Jones Transportation ETF (IYT) includes a selection of railroad stocks.
For a construction investment, look to the PowerShares Dynamic Building & Construction Portfolio ETF (PKB) or First Trust ISE Global Engineering and Construction Index Fund (FLM).
There’s Always a Risk to Politically Motivated Investments
All investments have risk, and making a bet on a stock because of an expected political outcome is a big gamble. If you plan to invest in any of the businesses mentioned in this article, make sure to do your own analysis before pulling the trigger to ensure the company fits well with your portfolio and investment goals.
Some of these businesses may see great success regardless of what happens in Washington. Some may fall on hard times due to changes in tariffs, management, or other issues beyond their control. This is why it is incredibly important to have a diverse, well-rounded portfolio, particularly if you plan on adding political risk to your investments.
Finally, make sure to look at the recent history of each stock or ETF before investing. The S&P 500 is up about 8 percent over the last three months and many of the stocks and ETFs in this article are up that much or more since the November election. Some of these increases were due to expected results in the future, so don’t go all-in without considering whether the gains you are looking for are already baked into the stock price.
But if you believe that Trump will succeed in building a border wall and upgrading aging infrastructure around the United States, there are certainly going to be businesses involved. Investing in those businesses just may lead to great financial results and a booming share price. If you are bullish on infrastructure, now is the time to invest.