There is nothing new under the sun. - Ecclesiastes 1:9
I'm a sucker for those "impulse buy" periodicals you always see when you're standing in the checkout line at Wal-Mart, Target, or Wegmans.
No, I'm not talking about the credibility-bending "News of the World (WWII German U-Boat Surfaces in New York Harbor - Crew Believes They're Still at War)" or any of those celebrity-chasing rags ("Insert-Name-Here Enjoys Hot Night in Hot Tub While Spouse Is on Movie Location").
I'm referring to those often-cool "special issues" that National Geographic, Time, and Scientific American seem to be doing with increasing frequency.
Just last week, in fact, I couldn't resist buying a National Geographic special called "Wonders of the Ancient World."
And I'm glad I did.
Because stuck in the middle of this slick, 130-page booklet was a feature about four "early infrastructure" projects.
Let's take a quick walk through history and look at each of the four. Then let me tell you about a move that a "smart money" player just made that spotlights a new 21st-century profit opportunity most investors aren't even thinking about right now.
When most folks think about "infrastructure," I'll bet that potholes are one of the first things they think of.
And I can't blame them - potholes tick me off, too.
To be clear, I'm not talking about the little ones that appear here and there as your street ages or that are the result of a highway's regular usage.
I'm talking about those kidney-jarring pits that appear after a tough winter or after a water-main break - the kind that literally bounce you off the roof of your car when you hit them at highway speeds (or a little faster).
I have an hour-long commute - twice a day (to and from the office) - and am well-acquainted with those Grand Canyon-esque highway pits of hell.
They're proliferating, which underscores a reality we face - our "infrastructure" is breaking down.
And it's not just roads. Here in Baltimore City, where my office is, the water system is on life support. More than once I've gone to our kitchen to get a cup of water only to watch something brown run out of the faucet.
And we're constantly dealing with detours as Baltimore's valiant public works crews struggle to repair the latest damage.
Baltimore isn't alone - cities across the United States are dealing with this. Surging traffic numbers mean roads and highways are being used in excess of their designed capacity. Bridges are aging. Water systems are decrepit. Parks need upgrading...
Indeed, it's a problem throughout the world as the global population continues to boom.
And it's not just repairing or upgrading old "infrastructure" - the official term for these public works projects.
You also have to add new projects into this mix. New developments - and new cities - require new roads to serve them. And new bridges. New water systems. And new airports.
This challenge isn't one limited to our modern times. Throughout history, growth has spawned the need for infrastructure projects - most of them publicly funded.
In that special issue, National Geographic highlighted four spectacular public works projects from history. And they're worth a look before we move on to the profit opportunity I'm going to tell you about - because they highlight the challenge that's creating this opening for us.
The four projects I found consisted of:
As the quotation I shared at the start of this report tells us, there truly is nothing new under the sun. Infrastructure projects - roads, water-supply systems, dams, and transportation hubs - were as important in the ancient world as they are today.
With perhaps one difference.
Traditionally, infrastructure projects have been the bailiwick of government - at the federal, state, and local levels. That's why these initiatives are referred to as "public" works projects. They're constructed for the good of the public - and are financed that way, too. Government entities can issue bonds to finance the projects, making it easier to raise the capital required for what are often very expensive undertakings.
But this "all-government" rule of thumb is succumbing to reality.
Governments, you see, can't afford to keep paying the freight for all these projects.
And with good reason.
Worldwide, there's a need for $57 trillion worth of infrastructure spending over the next 15 years, the McKinsey Global Institute said in a new report issued in June.
And the consultancy acknowledged "that's an enormous sum."
But there's good news.
There's a growing number of cases where governments are linking up with private-sector investors to finance these projects. That's making it possible for more of them to be built. And it's also creating a whole new venue of "alternative investments" for folks like you and me who are seeking new-and-lucrative places to put our investable cash.
Truth be told, we've been hearing about the "potential for infrastructure investing" for the past decade or so.
But a brand-new move by the "smart-money player" I mentioned earlier tells me it's time to give this a serious look.
That $57 trillion is an enormous sum, but contrary to popular belief, there is no shortage of capital. In fact, there will be more than enough as both governments and investors increase their focus on infrastructure.
Back during my days with The Baltimore Sun, I spent several years on the finance "beat." And one of the companies I covered was brokerage/asset manager Legg Mason Inc. (NYSE: LM).
And unlike many of the institutional players out there, Legg is a shrewd operation.
Indeed, it was a Legg Mason money manager - a gent named James C. Liddle - who took me under his wing during my early business journalism days and schooled me in the ways and means of "value investing" and "Contrarian investing." I embraced that way of thinking so completely, in fact, that I eventually coauthored a successful book on Contrarian investing.
Legg, through the years, has had an uncanny feel for the business of investing. A few years back, in fact, the company's savvy leaders saw that the most lucrative venue in its business was in asset management - and not in being a transaction-based broker.
So the Baltimore-based Legg agreed to swap its 1,400 stockbrokers for the mutual-fund business of Citigroup Inc. (NYSE: C). The $3.7 billion deal completed Legg's transformation into one of the biggest money managers in the United States.
As The Washington Post explained it, "Citigroup would largely exit the mutual fund business in favor of selling such funds for others [while] Legg Mason would do the opposite, concentrating strictly on managing mutual funds and other investment products and getting out of the stock-brokerage business."
For Legg Mason, it was a brilliant and timely move. The financial crisis of 2008 made it tough on brokers. Firms with assets under management - though hurt by the drop in valuations - were better off because of the "annuity stream" they received from fees based on the assets they controlled. And when asset prices recovered, those fees recovered faster than brokerage transactions.
I'm telling you this for a reason. Legg just made another move. It's another shrewd one. And it signals the burgeoning opportunity in infrastructure investing.
Earlier this month, Legg Mason struck a $205 million deal to buy Sydney, Australia-based RARE Infrastructure, a firm that invests in infrastructure companies and projects throughout the world. These projects include airports, water delivery systems, natural gas, roads, railways, and power systems. RARE has $7.6 billion in assets under management.
"It's pretty much a pure diversification play," Loyola University Maryland Finance Professor Karyl Leggio told The Sun. "This is a growth area for financial-services firms. The acquisition looks to be a good sign for the fiscal strength of Legg Mason and its foresight into directions that the market [is] moving [in]."
Thanks to super-low interest rates, a sky-high stock market, and a brutal sell-off in traditional alternatives like commodities, investors are looking for "other" profit opportunities. And infrastructure is a sound one.
"It's an asset class that's gaining a lot of traction in terms of importance in asset allocation," Mac Sykes, an analyst with Gabelli & Co., told the newspaper. "It's a good alternative for fixed income... there are a number of ways in which this would be a positive."
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Our first recommendation in this area is going to be Legg Mason itself. It's not a flashy recommendation, I'll grant you, but it's solid. And Legg is a company that understands its business and has a knack for making moves ahead of market shifts. That knack has been demonstrated time and again during the 30 years I've watched, dealt with, and covered the company.
The stock is currently trading at $49. But target prices range from a low of $57 to a consensus of $63 to a high-water estimate of $67.
The move into infrastructure will give its growth a boost. And it does pay a dividend - offering a decent yield of 1.65%.
Buy 60% of your intended position here. And we'll look to add to it in the event of a market correction.
We'll also be back with additional infrastructure-related profit plays.
In fact, we're just getting started.
Have a great weekend.
Money Morning Executive Editor Bill Patalon uses a secret investment strategy that has handed his readers more than 257 winning investments, including 192 double- and triple-digit peak gains. Once you see the secret, you'll immediately understand why it works so well. Click here.
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About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.