[Martin Denholm is the managing editor of the Smart Profits Report.]
Pack your bags, folks – "There's no more Wall Street."
That's the damning verdict from Alan Greenberg, former CEO of The Bear Stearns Cos.
Speaking on Bloomberg TV’s "Money and Politics" show, Greenberg declared that the existing Wall Street investment-banking model is dead.
I'm not sure about death, but the broader U.S. economy is like a 2:00 A.M. drunk, continuing to stumble towards the end of a mind-altering 2008, with little long-term relief in sight. Will it ever find its way home again?
One of President-elect Barack Obama's most ambitious and large-scale plans quite literally seeks to dig America out of this mess – and here's how you can profit, too. But you'd better act fast. Some of Wall Street's big boys are already placing their bets.
The Eisenhower Model
Obama will take the oath as 44th president of the United States on Jan. 20.
Since his Nov. 4 victory, the more he's said about "getting to work immediately" and having "no time to waste," the more I think the inauguration ceremony will be a time-consuming inconvenience, distracting him from fixing America's problems.
One key area in which he's pledged to spend his way out of the mire is by tackling the country's aging and rapidly deteriorating infrastructure. He plans to make the largest investment to repair and upgrade the country's public works systems since Dwight Eisenhower spearheaded the nationwide interstate highway system in the 1950s.
In short, this means utility industries like electric and water will receive huge cash infusions. Roads and bridges will be repaired and rebuilt. Schools will be modernized, part of which will include improving Internet access to a nation that ranks 15th in the world in broadband adoption. Energy efficiency, particularly in government buildings, will be increased. The healthcare industry will make greater use of technology to streamline and computerize medical records to cut costs.
That's the plan anyway. And Obama says it will create 2.5 million jobs by 2011.
Obama's economic brain trust is currently "busy working, crunching the numbers… to determine what the size and scope of the economic recovery plan needs to be. But it's going to be substantial."
Kind of vague right now, I know. But just yesterday (Thursday), one of his advisers floated a dollar figure of $850 billion. In terms of infrastructure upgrades, 5,000 road and bridge projects could get under Caterpillar Digs Deep into the Developing World for Profit way immediately after Obama puts his autograph on the bill.
Brick By Brick… Bridge By Bridge
With U.S. infrastructure set to have a sweaty wad of cash lobbed in its direction, construction firms are lining up to grab a share of the spoils, particularly as the need for equipment and raw materials rises.
Appropriately, we start in Obama's home state of Illinois, which is also home to the world's largest manufacturers of construction and mining equipment, engines, and industrial turbines. Founded in 1986 and based in Peoria, Caterpillar (CAT) has seen its shares shoot up from $37 to over $45, as the company feeds off the infrastructure buzz.
One of Caterpillar's fellow Illinois-based construction equipment manufacturers, Deere & Company (DE), could also be set to extend a share price boost that has seen the price surge from the upper $20s on November 20 to over $39 today.
If you want a more diversified way to play the industrial and construction sector, take a look at the Industrial Select Sector SPDR (XLI) exchange traded fund (ETF).
On the engineering front, head west and look no further than California's Jacobs Engineering Group (JEC), which is the largest publicly traded engineering firm in the U.S. The infrastructure love is spreading across the sector, as the stock shot up on news that it has secured two more contracts…
- A five-year, $17.5 million contract from the Peninsula Corridor Joint Powers Board that will see Jacobs serve SamTrans and the San Mateo County Transportation Authority agencies to work on three programs. This includes project management, scheduling, budget management, and more.
- A contract from Pima County, Arizona to provide project management and construction inspection services for the Ina Road water reclamation project. Construction costs here will total about $200 million.
Jacobs pulls in a whopping $11 billion annually and employs more than 57,000 workers – a number that could grow under Obama's bold plan.
Speaking of water, if you're looking to cash in on this critical industry amid a surging global population, increasing pollution, and a depleting, finite amount of water resources, check out leading firm Watts Water Technologies Inc. (WTS) or the sector ETF, PowerShares Water Resources (PHO), which tracks the price and yield performance of the Palisades Water index.
Be sure to also pay a visit to our own free Smart Profits Report research section, where you can read much more about the water problems facing the world – and the vast profit potential that the industry holds. We've got two in-depth (pun intended) water reports up there.
On the raw materials side, several firms spring to mind as potential winners of the Obama infrastructure initiative. And as Jim Cramer might say, they're "best of breed" in their industries.
- Cement: South of the border – in Garza Garcia, Mexico, to be exact – you can find Cemex SAB de CV (ADR: CX), a world leader in producing, distributing, and selling cement. And when it comes to infrastructure rebuilding and repairs, you don't get many more commodities more important than this one. Its market cap of almost $8 billion is evidence of this.
- Steel: Talk about a liftoff. U.S. Steel Corp. (X) shares have surged from the mid $20s on November 20 to a current price around $37 a share.
- Copper: Copper hit a 52-week high of $127.24/ton on May 21, 2008. The price now sits around $20/ton. Quite a slump for what is the largest publicly traded copper producer, Freeport-McMoRan Copper & Gold Inc. (FCX). You can blame the prolonged commodities sector slump for that, in addition to the stock market's woes. But in an Obama-fueled, infrastructure rebuilding rampage, I'm betting on a resurgence.
- Aluminum: Go large. The leader here is Alcoa Inc. (AA). Like FCX, Alcoa has endured a rocky year. Having traded at a 52-week high of $44.77 in May, the stock market's tank job has whipped this stock into submission. Shares are currently trading around $10 and with a 0.37 Price/Earnings-to-Growth (PEG) ratio, the market thinks it's ridiculously undervalued.
The bottom line here is that companies like these could all stand to profit from a huge ramp up in infrastructure spending. What's more, they're all solid, well-established, industry-leading firms with strong cash positions, doing business in areas where there are clear, critical needs. If you're looking for outperformers, infrastructure stocks are set up well for 2009.
[Editor’s Note: In the wake of President-elect Obama's recent announcement to spend billions of dollars to repair and rebuild America's sagging infrastructure, our colleague, Martin Denholm, Managing Editor of the Smart Profits Report, has analyzed what this massive spending spree could mean for infrastructure stocks. He looks at Obama's plan – and which stocks are poised to profit as a result. Smart Profits Report shows any investor how to grow wealth faster and with less risk than 99% of "ordinary" investors, using the same advanced, yet easy-to-execute, investment strategies that Wall Street's pros use every day.]
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