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If the last 10 years has taught us anything, it's that investing alongside government stimulus will ensure returns.
Over the last decade, four major stimulus events have provided huge support to the stock markets.
Three rounds of quantitative easing pushed stocks to new records, and the Trump administration provided its extra charge in the form of corporate and individual tax reform. The Dow Jones Industrial Average soared 154.56% since the first quantitative easing in November 2008.
It might violate my economic views on free markets, but I'd have to be terribly hardheaded to not capture a share of my own tax money being thrown at the equity markets.
While some analysts are saying that there isn't much value available in today's frothy market, or that a correction is in order, we're looking for opportunity from a fifth stimulus program.
Currently, the S&P 500's PE ratio is 25.53, according to Multpl.com. From 1900 to 2017, the average PE ratio was 15.8, so this is quite the frothy market.
U.S. President Donald Trump's pending $1.5 trillion infrastructure plan might not provide a broad stimulatory impact on the equity markets like quantitative easing, but it certainly will provide targeted gains for investors who know where to look.
I'll explain why this stimulus program is different from the others, and then give you the perfect way to still make big gains from the Trump administration's infrastructure project with an alternative income play…
Shaking Up the Infrastructure Industry
Many will recall that the United States spent $787 billion in federal money in the American Recovery and Reinvestment Act of 2009. This was the first stimulus program since the onset of the Great Recession.
However, this federal stimulus program, as former U.S. President Barack Obama noted, created "shovel-ready" jobs that were "not so shovel-ready."
The Trump plan is different because of the way the deal is structured.
President Trump's plan calls for at least $1.5 trillion "to rebuild the nation's infrastructure and to develop innovative projects." But that $1.5 trillion figure only accounts for $200 billion of federal money; the rest comes from state governments and private capital.
President Trump Wants a $1 Trillion Infrastructure Bill
This means that the project will need to spur $1.3 trillion in spending from the private sector, cities, and states.
While states and cities will be looking to provide public services with their spending, private capital funds will be looking to make a return on their investment.
And they'll be given another way to get a return on their investments through infrastructure, too.
In a separate budget, the president's plan calls for federal agencies to have the authority to sell assets that might be better managed by private companies or local authorities. That means private investors will both get an incentive to take on public infrastructure projects and actually own some previously government-operated assets.
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This could shake up the equities markets in unique ways…
For example, in the United States, no publicly traded airports or toll road operators exist. These types of enterprises, however, are common in Europe.
The largest U.S. infrastructure fund – the Lazard Global Listed Infrastructure Portfolio – holds its largest stake in an Italian company called Atlantia Spa (OTCMKTS: ATASY), which manages Rome's airport and a large number of toll roads across Italy.
While introduction of similar equities in the United States will create exciting new opportunities in the market, finding value might not be so easy. It is worth noting that infrastructure projects and their associated returns on investment are heavily reliant on energy projects like oil pipelines, electricity distribution, and power turbines.
The problem is that utilities stocks are currently overvalued, which means you're paying more for your returns than you would in another sector.
The Dow Jones Utility Average currently trades at almost 20 times earnings and more than two times book value. Thanks to yield-chasing investors, the index currently yields just 3.49%.
Fortunately, we've done the hard work for you and found a way to get both value and access to these potentially lucrative projects…
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.