The Great Trump Infrastructure Play
Diupdate
It has been postulated by people I trust and respect that the best next step for Donny J. Trump is to enact an aggressive FDR like infrastructure initiative to grow jobs and 'build America'. This theory has already been somewhat confirmed, as Trump literally that same day pissed off environmentalists with an aggressive move to expand infrastructure (axios.com/trump-environment-protections-executive-order-f6aec1e3-e12f-4f07-9b0a-14f3240a751f.html)
I'm incredibly reserved and hesitant to buy anything right now, but this is a macro theory that holds water (pun intended) and if the Fed does stop propping markets up, they won't stop propping up quality infrastructure-based stocks as they attempt to pull off a "Donny: The Great Builder" look before next November.
These are the companies I've found with high p/e (ie. sought after, market willing to pay premium), that are outperforming or near to outperforming their sector, which is outperforming the market. This is hard, because US Infrastructure sector is essentially bleeding, down -35% compared to a market up 9%.
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ROAD
Contruction Partners has a phenomenal balance sheet, trades at a healthy P/E of 23.5x (higher than sector and market), and is considered a whopping 43% *overvalued* by SimplyWallSt. This means the market is paying a handsome premium for whatever reason.
The biggest caveat to ROAD, which meets all criteria to a 'T' by every other metric, is its technicals. ROAD became massively volatile starting December 2019, which was accentuated by COVID-19. The price has recovered like the market overall--a dramatic V that has taken out a significant resistance level. Still, the sharpness and number of declines since December prompt caution in buying at current levels.
WTRG
Essential Utilities deals in water/wastewater services. They continue to expand year over year. They trade far *above* SimplyWallSt fair value, but perhaps there is a reason the market pays this premium (P/E is 39.5x)? Their debt has spiked recently, but so has their equity. Perhaps they are aggresively expanding, to significant success, and can reign this debt in easily if desired. It's important to note WTRG has to date *not outperformed it's sector or the US Market*, which may be grounds to rule it out as part of this infrastructure play.
NYSE:MIC
Trading "below" SimplyWallSt fair value, Macquarie Infrastructure has beaten its sector, but both are significantly negative for the year... which may be a positive if you're a buy low type. While they have significant debt, the market has justified trading them at near 60x P/E. The trend reversal isn't as strong/convincing here as with WTRG.
AY
Atlantica Sustainable Infrastructure is the best "sustainable" I could find that fits the criteria above. Gotta work that "sustainable" in. It is probably the future, like it or not. AY trades at "39.7% below" SimplyWallSt fair value, pays a high though seemingly unsustainable dividend, and an insane level of debt with slowly decreasing equity. Still,the market pays a premium of 92.2x earnings for this stock.
Further research revealed that AY is majority owned by Algonquin Utlity Corp, and I ended up liking that stock a little more as it has a cleaner balance sheet (see below). It might be better to cut out the middle man and play a pure power utility that owns most of AY versus the pure sustainable infrastructure play.
AQN
Algonquin Power & Utlities is a smaller player in the space that operates in US and Canada. If both countries take on infrastructure initiative, could be a double whammy. Stock has performed well historically trending up for its lifetime until COVID-19 hit. Balance sheet is healthy, or debt and equity are balanced at the very least (a trend towards increased debt and decreasing equity bodes mildly worrisome).
AQN owns AY, so this can be considered an alternative energy investment.
It has outperformed it's sector (US Integrated Utilities) and the market overall, up 17.5% for the year as of writing this. Trading at "26.7% below" SimplyWallSt fair value.
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So these are my Great Trump Infrastructure Play ideas, based on how I was taught to screen companies to go long. I haven't made moves on any of these, and I'm not telling you to, either. Just tossing around ideas. What do y'all think?
-ONI
I'm incredibly reserved and hesitant to buy anything right now, but this is a macro theory that holds water (pun intended) and if the Fed does stop propping markets up, they won't stop propping up quality infrastructure-based stocks as they attempt to pull off a "Donny: The Great Builder" look before next November.
These are the companies I've found with high p/e (ie. sought after, market willing to pay premium), that are outperforming or near to outperforming their sector, which is outperforming the market. This is hard, because US Infrastructure sector is essentially bleeding, down -35% compared to a market up 9%.
--
ROADContruction Partners has a phenomenal balance sheet, trades at a healthy P/E of 23.5x (higher than sector and market), and is considered a whopping 43% *overvalued* by SimplyWallSt. This means the market is paying a handsome premium for whatever reason.
The biggest caveat to ROAD, which meets all criteria to a 'T' by every other metric, is its technicals. ROAD became massively volatile starting December 2019, which was accentuated by COVID-19. The price has recovered like the market overall--a dramatic V that has taken out a significant resistance level. Still, the sharpness and number of declines since December prompt caution in buying at current levels.
WTRGEssential Utilities deals in water/wastewater services. They continue to expand year over year. They trade far *above* SimplyWallSt fair value, but perhaps there is a reason the market pays this premium (P/E is 39.5x)? Their debt has spiked recently, but so has their equity. Perhaps they are aggresively expanding, to significant success, and can reign this debt in easily if desired. It's important to note WTRG has to date *not outperformed it's sector or the US Market*, which may be grounds to rule it out as part of this infrastructure play.
NYSE:MIC
Trading "below" SimplyWallSt fair value, Macquarie Infrastructure has beaten its sector, but both are significantly negative for the year... which may be a positive if you're a buy low type. While they have significant debt, the market has justified trading them at near 60x P/E. The trend reversal isn't as strong/convincing here as with WTRG.
AYAtlantica Sustainable Infrastructure is the best "sustainable" I could find that fits the criteria above. Gotta work that "sustainable" in. It is probably the future, like it or not. AY trades at "39.7% below" SimplyWallSt fair value, pays a high though seemingly unsustainable dividend, and an insane level of debt with slowly decreasing equity. Still,the market pays a premium of 92.2x earnings for this stock.
Further research revealed that AY is majority owned by Algonquin Utlity Corp, and I ended up liking that stock a little more as it has a cleaner balance sheet (see below). It might be better to cut out the middle man and play a pure power utility that owns most of AY versus the pure sustainable infrastructure play.
AQNAlgonquin Power & Utlities is a smaller player in the space that operates in US and Canada. If both countries take on infrastructure initiative, could be a double whammy. Stock has performed well historically trending up for its lifetime until COVID-19 hit. Balance sheet is healthy, or debt and equity are balanced at the very least (a trend towards increased debt and decreasing equity bodes mildly worrisome).
AQN owns AY, so this can be considered an alternative energy investment.
It has outperformed it's sector (US Integrated Utilities) and the market overall, up 17.5% for the year as of writing this. Trading at "26.7% below" SimplyWallSt fair value.
--
So these are my Great Trump Infrastructure Play ideas, based on how I was taught to screen companies to go long. I haven't made moves on any of these, and I'm not telling you to, either. Just tossing around ideas. What do y'all think?
-ONI
Catatan
Adding to the list:[IMG]
IRIngersoll-Rand is a name I see everywhere on my delivery route. The name is, to me, synonymous with major road and construction projects. There are always IR generators, welders, etc. Curiously, the balance sheet has spiked since the beginning of the year in a good way. Debt is growing, but equity is exploding at several times the pace. #expansion.
IR trades at 92x P/E (!! Holy crap), but it's not unusual for explosive growth companies (ie. AMD) to trade at those P/Es. The technicals are in favor, but IR has underperformed its sector and the market YTD. SimplyWallSt considers IR undervalued, with a target of $51.41.
Catatan
Adding to the list:
JJacobs Engineering Group, "provides consulting, technical, scientific, and project delivery services for the government and private sectors in the United States, Canada, Europe, Asia, India, Australia, New Zealand, South America, Mexico, the Middle East, and Africa." So any country interested in expanded government infrastructure projects may seek out J's expertise.
J has a healthy balance sheet for now, though debt is skyrocketing at a rather worrying rate. J is currently outperforming its sector and the market YTD, though just barely. J trades at 71.2x earnings, so the market seems more than willing to pay extensive premium. SimplyWallSt finds J a whopping 53% undervalued, with a target fair value of...$189!
The thing is, before these aggressive infrastructure projects can break ground, they require the services of consultants and scientists, services that J happens to specialize in. If they can lock down the massive amount of government contracts likely to flood in soon, then maybe $189 is not that crazy?
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