In last week's State of the Union Address, U.S. President Barack Obama delivered some hints as to where he'll focus his spending over the next four years – signaling some stocks to buy in 2013.
In his speech, President Obama made reference to the critical need for infrastructure spending in the United States. He proposed a "fix-it-first" program to address some of the more pressing needs among our nation's roads, highways, bridges and other areas in need of repair.
We have heard this type of political commentary before as the need for infrastructure repair was a highlight of the 2008 campaign. Deteriorating infrastructure is a growing problem in the United States.
The American Society of Civil Engineers in a recent report expressed concerns that there is critical underfunding for infrastructure programs. They estimate that current U.S. policies will underfund surface transportation, aviation, waterways, electrical grid and sewers by about $1.1 trillion through 2020.
Spending has been delayed at all levels by the recent recession and credit crisis and the nation's transportation , water and electrical systems have declined and are in need of repair and upgrade, according to most experts. The ASCE study estimated that deteriorating infrastructure could eventually subtract as much as $3 trillion from U.S. gross domestic product.
That's why the White House today (Wednesday) outlined a $50 billion infrastructure plan, including $40 billion for "fix-it-first."
This creates a potentially huge opportunity for investors who know the right stocks to buy now.
At some point the money simply has to be spent or our economy and global competitive positions decline to unacceptable levels. The wave of money that needs to be spent will boost revenue for companies that build roads, repair water systems and other vital infrastructure systems. The stock prices of these companies will follow suit and at some point in our future infrastructure stocks will likely become a bubble sector with soaring prices and huge profits.
Smart, patient investors who begin to accumulate these stocks while they are out of favor can make a fortune when the spending tidal wave is finally unleashed.
Here are some infrastructure stocks to buy now to profit from this looming trend.
Infrastructure Stocks to Buy Now
One company that could be a major beneficiary of increased infrastructure spending is Texas-based Sterling Construction Co. Inc. (Nasdaq: STRL).
The company builds, reconstructs and repairs highways, roads bridges and water systems in five western states. It has a large presence in its home state and California, the two states that have the largest funding allocations in the recent federal surface transportation program.
Spending on water infrastructure should also be an important contributor to growth as the water-starved western region of the nation repairs and constructs systems to meet the growing demand for drinking water.
At around $11 a share, the stock is incredibly cheaply priced given the long-term opportunities the company has in its future. The company trades at less than book value and has almost one-third of the market capitalization in cash.
Before the economic slowdown caused infrastructure spending to decline precipitously Sterling was a $30 stock. There is no reason the stock cannot recover the ground when spending returns and generously reward patient investors.
Another stock to buy now already saw the benefits of President Obama's previous infrastructure spending pledge.
Back in 2008, when the election discussion centered on infrastructure, the stock of a small company in Florida saw its price quickly triple as investors anticipated increased highway spending to stimulate the economy. The stock went from about $10.20 a share to $31.85 in three months.
When the spending did not materialize shares of heavy machinery manufacturer Gencor Industries Inc. (Nasdaq: GENC) declined back to the original level and have languished there ever since. The company manufacturers asphalt plants and other machinery systems for the highway construction industry. Without widespread municipal spending on roads, highways and bridges there simply is not a lot of business to be had.
But eventually the money has to be spent, and when it is demand for the company's products will skyrocket.
While we cannot predict when the spending begins anew we can see that Gencor trades in the market place of less than the value of the cash and securities held on its books. The stock is extraordinarily cheap and appears to have a large margin of safety.
For more stocks to buy in 2013, check out this report on how to profit from this year's blockbuster new drugs.