Immediately after winning a closely fought election on Nov 9, Donald Trump outlined his priorities as President. Promising to step up economic growth he promised to build the U.S. into the “strongest economy” in the world. Trump shied away from several of his more divisive campaign promises and instead chose to mention one unifying issue alone.
Trump pledged to “rebuild our highways, bridges, tunnels, airports, schools, hospitals.” The emphasis on building up infrastructure “second to none” puts the spotlight squarely on stocks related to the sector. This may be a good time to add some of the better options from this area to your portfolios.
Glaring Deficit Lingers
The state of U.S. infrastructure has been a matter of concern for some time now. According to a study published by the American Society of Civil Engineers in May, GDP could decline by nearly $4 trillion during 2016-25 if the glaring infrastructure gap is not addressed immediately. The poor condition of bridges, roads, waterways and airports would result in that amount of losses in lower sales, higher costs and lower incomes.
According to the report, the economy could also suffer job losses of up to 2.5 million if infrastructure spending is not stepped up. In 2015, domestic public capital investment, inclusive of infrastructure, was merely 3.4% of GDP, per figures released by the President’s Council of Economic Advisors. At $611 billion, this amounts to only 0.5% of GDP after accounting for depreciation.
Massive Impetus to Infrastructure
Both Democratic nominee Hilary Clinton and President elect Trump had been demanding a hike in infrastructure investment while on the campaign trail. Trump’s infrastructure proposals quote National Association of Manufacturers data which estimate that a “ten year funding gap” of nearly $1 trillion exists.
The President elect plans to spend this amount on improving infrastructure. According to the Trump plan, such spending would be financed by private investors. These investments would be made in lieu of tax credits, which would make up around 82% of the total amount of equity invested. Lost revenue would be recovered through a higher quantum of income taxes paid by construction workers and business taxes levied on contractors.
Is Trump’s Plan Feasible?
While Trump’s plan would entail no additional costs to the exchequer, critics of the plan believe that it is flawed. Some experts and industry insiders believe that privately funded projects need to deliver decent profits. This means that private investors would be more interested in investing in toll roads, water systems and airports. Routine maintenance, such as repaving roads, would seem less attractive.
However, a combination of public and private investment could do the trick. Advances in technology have made public–private partnerships an increasingly favored option. This has resulted in the creation of smart cities and higher funding for smart transportation projects. While Trump’s original plan will have Republican support, any increase in infrastructure investment will be broadly supported by Democrats as well. Trump has shown his pragmatic side since being elected and it is likely that he will do so on this crucial issue as well.
Fresh emphasis on infrastructure has been driving up the sector’s stocks post the election of Donald Trump. Given the President elect’s strong emphasis in this direction, stocks from this sector are likely to chalk up gains in the future as well.
Picking stocks gaining from this infrastructure push is a smart option at this point. However, picking winning stocks may prove to be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
Willdan Group, Inc. (WLDN - Free Report) is a provider of professional technical and consulting services to utilities, private industry, and public agencies at all levels of government.
Willdan Group has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 82.7% for the current year. Its earnings estimate for the current year has improved by 11.8% over the last 30 days.
Gibraltar Industries Inc. (ROCK - Free Report) manufactures and distributes products to the industrial and buildings market. The company prepares complex designing components for elevated highways and bridges.
Gibraltar Industries has a VGM Score of B. The company has expected earnings growth of 45% for the current year. Its earnings estimate for the current year has improved by 9.7% over the last 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
MasTec, Inc. (MTZ - Free Report) is a leading infrastructure construction company operating throughout the U.S. The company engages in the building, installation, maintenance and upgrade of energy, communication and utility infrastructure.
MasTec has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 7.6% over the last 30 days.
Comfort Systems USA Inc. (FIX - Free Report) is a provider of comprehensive heating, ventilation and air conditioning installation, maintenance, repair and replacement services.
Comfort Systems has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 33.9% for the current year. Its earnings estimate for the current year has improved by 0.9% over the last 30 days.
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