The Five Best Infrastructure Stocks to Watch in 2017

The best infrastructure stocks are those that have something more to offer beyond the boost of President-elect Donald Trump's plans to spend hundreds of billions of dollars on transportation, energy, and water projects.

Today, we're bringing readers five of the best infrastructure stocks to watch in 2017.

Trump has proposed spending between $500 billion and $1 trillion on infrastructure over the next 10 years.

best infrastructure stocksThat's why infrastructure stocks skyrocketed on Nov. 9, the day after Trump's surprising election win.

Steel Dynamics Inc. (NYSE: STLD) and AK Steel Holding Corp. (NYSE: AKS) were both up about 10%, while U.S. Steel Corp. (NYSE: X) soared almost 20%.

Construction stocks Fluor (NYSE: FLR) and Granite Construction Inc. (NYSE: GVA) both rose about 8%; Vulcan Materials Co. (NYSE: VMC) jumped nearly 10%.

The steep increases in infrastructure stocks is not just a reaction to the potential cash infusion into this sector. It's also a vote of confidence from Wall Street that Trump will succeed in making these projects happen.

You see, Trump's plans for infrastructure have a better chance of becoming reality than just about anything else he has proposed...

Why Infrastructure Stocks Look Like Such a Good Bet

The problems with America's crumbling roads and leaky water systems are well known and undisputed. The American Society of Civil Engineers (ASCE) has estimated that the United States needs to spend $3.64 trillion on infrastructure improvements, including $1.72 trillion on surface transportation.

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And the political climate couldn't be better. According to a poll taken in June for the Association of Equipment Manufacturers, 72% of voters said the federal government should be doing more to improve infrastructure.

And while Republicans control both houses of Congress, Trump can expect support from some Democrats on Capitol Hill as well. Boosting infrastructure spending has long been a goal of the Democratic Party.

"Democrats have been trying for decades, multiple decades, to get Republicans to invest in our deteriorated infrastructure," Sen. Harry Reid (D-NV) said in a Nov. 15 speech from the Senate floor. "If we can finally get Republicans to make the job-creating infrastructure investments we have been seeking for years, that will be a welcome development for the Senate and the country."

Sen. Chuck Schumer (D-NY), who will replace Reid as minority leader in January, is also known as an advocate of infrastructure spending.

The only sticking point is how Trump plans to pay for it...

There's More Than One Way to Pay for Infrastructure

Several Democrats have objected to the way Trump wants to fund his infrastructure proposals. He wants to offer about $137 billion in tax credits to private companies that would finance and build the projects themselves. The idea is that the credits will draw in hundreds of billions of dollars more in private investment, up to $1 trillion.

Critics say this approach will skew projects only toward those where companies can recoup their investment by charging tolls or fees, roads and bridges being the most obvious examples. The concern is that companies would ignore aging water infrastructure.

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But if Trump proves to be the dealmaker he claims to be, he will work out a compromise with the Democrats.

The seeds of such a deal lie in Trump's corporate tax reform plan. To encourage companies to repatriate some $2.6 trillion in profits stashed overseas, Trump has proposed a one-time reduction in the corporate tax rate to 10% (it's 35% now). That would raise between $100 billion and $200 billion, depending on how much money came home.

Schumer already has proposed using repatriated profits to pay for infrastructure projects. The path to a deal will feature a combination of Trump's tax credit idea and the use of tax receipts from repatriated profits.

In the world of Washington politics, some kind of infrastructure deal is as close as it comes to a sure thing.

But how to find the best infrastructure stocks to buy is another matter. That's why we turned to Money Morning Capital Wave Strategist Shah Gilani...

Five of the Best Infrastructure Stocks for 2017

Investors who owned infrastructure stocks before the election have already enjoyed some gains. Gilani said those folks should hold on to those stocks, although he recommends using trailing stops to lock in gains.

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For investors caught by surprise by Trump's election, Gilani said the best infrastructure stocks include Caterpillar Inc. (NYSE: CAT), Deere & Co. (NYSE: DE), Emerson Electric Co. (NYSE: EMR), Cummins Inc. (NYSE: CMI), and Nucor Corp. (NYSE: NUE).

"I like them for their dividend yields and because they are proven winners," Gilani said. "But the problem is they've all been bid up through the roof and are way too lofty for my liking right now."

That leaves investors with a couple of ways to go. One is to keep your powder dry for now and wait for the next stock market crash or pullback. With the markets trading near all-time highs, a pullback is bound to occur at some point over the next six months.

In other words, buy on the next dip. Even if prices don't fall that much, the infrastructure stocks on Gilani's list all pay nice dividends - your reward while waiting for share prices to go higher.

Gilani suggested a second strategy for those who'd like to act now.

"I like selling out-of-the-money puts on them," he said.

Puts are options contracts that give the owner of the contract holder (in this case, the person you're selling to) the right to sell that stock back to you later at a predetermined price (the strike price).

This allows you to make some profit right away, Gilani said, even if the price goes up and you decide not to get into the stock.

And while you'll have to buy shares at the strike price if the price falls, that's your chance to buy the stock outright at a lower price.

"There's going to be a lot of money to be made on rebuilding America, and we can all participate in that," Gilani said. In the months ahead, he said he has a "ton more great infrastructure plays" lined up for subscribers to his free Wall Street Insights & Indictments service.

To be sure you don't miss any of Gilani's profit-making ideas, click here.

Follow me on Twitter @DavidGZeiler or like Money Morning on Facebook.

About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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