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Is Infrastructure The Next Big Play?

One of the first orders of business for the new president will be a long, hard look at the budget. The budget deficit will be about $500 billion when Obama is sworn into office, but with the $700 billion TARP plan it should go to $1 trillion quickly.

With all that, you would think a second stimulus plan would be unthinkable, but with the support of Fed Chairman Bernanke traders are already acting like it's likely the lame duck Congress will enact another one shortly.

The numbers go as high as $300 billion. For what? Number One on everyone's list is infrastructure improvement. Why? Because few investments give as big a direct bang for the buck as spending on roads and bridges.

In the past couple days, traders have been nibbling on infrastructure plays like Cemex, Martin Marietta, Eagle Materials,Vulcan Materials, and Texas Industries.

But only nibbling. So why aren't infrastructure stocks rallying? Because, aside from the prospects for a government stimulus plan, the outlook for construction is ABYSMAL!

Even if there was a sizeable stimulus plan, it would take months—six months or more—to get money on the ground.

That's just far enough away to see AT LEAST another two quarters of terrible earnings. Remember, residential construction has been in a recession for a year already, but non-residential construction has just begun to slow down.

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  • It's not all bad news. I've noted that many companies have seen surprisingly strong earnings this quarter because they have been able to raise prices (Archer Daniels Midland) or been helped by lower energy costs (Alcoa, others).

    Higher prices and lower energy costs will help some construction companies, but don't kid yourself: they're living for the stimulus.

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    • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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