During the last few years we’ve been writing about how much our nation needs to
invest in its infrastructure. And while it might seem like an important topic,
most folks tend to yawn and look elsewhere for their big growth stock winners.
But they’ve been missing out. The unpretentious infrastructure and construction
companies have been big winners.
If asked what industry sector scored big during the last five years, most
wouldn’t think construction. Yet, most folks who bought into the whole gas and
oil frenzy are significantly behind those who bought dull and boring
construction companies.
During the last five years, the leaders in the S&P 500 Construction &
Engineering Index have generated a total return in excess of 166 percent, the
annual average equivalent of around 22 percent per year.
Putting that into perspective, the general market, as tracked by the S&P 500,
took away more than 15 percent of investors’ capital during the past five years.
And even if you had just focused on big oil and gas companies, you beat the S&P,
as tracked by the S&P Integrated Oil and Gas Index; but you lost out to
infrastructure and construction by a 3-1 margin.
All it takes to see the market demand for more investment in our existing roads,
airports, seaports, water systems and petroleum refining and transportation is
to get on a plane, hit the road, pull into a gas station, head into a retailer
or turn on the tap at the kitchen sink. These common activities underscore our
argument that the base of our entire economy needs more means to simply operate,
let alone expand.
The aftermath of Katrina highlights the pressing needs of our nation’s
infrastructure. In the past weeks we’ve all seen the real damage wreaked on our
port, oil and gas drilling, refining and transportation operations.
And rebuilding the damage from the storms and flooding isn’t just a one-time
blip that will enable traders to cash in on a few companies that just happen to
be in the neighborhood with an extra oil rig or some pipe and a crane. Instead,
the rebuilding and subsequent expansion of the region’s infrastructure will
grow.
You need to focus on companies that aren’t just local one deal wonders but are
big enough to keep growing as they’ve been doing before Katrina and will do well
after the media moves on to the next big story. One of our favorites involves
the initial response and rebuilding.
First Responder
Getting things up and running again is a top priority. As our history of natural
disasters as well as the attacks on 9/11 show, that priority includes several
tricky issues: accessing the site, stabilizing the area, re-mediating the new
and existing hazards—structural and physical/biological, as well as just
cleaning up the mess. That’s all while moving fast enough so you’re prepared for
the next disaster. This means getting the companies in line and contracted so
that they’re ready and on line in short order.
Shaw Group (NYSE: SGR) is the company that Uncle Sam has used before and
is using now in the Gulf to get problems under control and areas prepared for
reconstruction. The company specializes in coordinating emergency response for
disasters, which can include initial recovery to clean up and reconstruction.
Revenues can be volatile as the company goes from contract to contract, but
investors have been rewarded well, even before Katrina showed up. Shaw is a buy
up to $28.50.
