While it's true that stimulus packages will provide opportunities, it can't counter the impact of the downturn on world economies. In many cases, stocks such as Fluor and Siemens, were already laced with hopeful expectations that the spending packages would provide a chance for huge revenue growth.
Yet the ultimate infrastructure company, Caterpillar, announced disappointing earnings and outlined a grim economic picture where they will likely layoff 20,000 employees. Other infrastructure companies have announced similar results. What's going on?
It's simple -- expectations must come back to reality. Valuations matter. Expectations must be grounded in prudent assessment, and euphoria must be tempered. Ahh, the bubble trend continues. Hope beyond reason.
So, how do you analyze these companies and their investment opportunities? Here's a start. Assess the following:
- What are current realities in terms of earnings? Solid? Do you trust the outlook the company gives?
- How will the downturn in the economy negatively affect revenue? Subtract economic headwinds.
- What positive impact will the spending tailwind from stimulus packages impact results? Add stimulus benefits.
- Does the current share price factor in these three issues? If not, why the fear or euphoria?
You can't look at these issues in isolation. You have to examine all of them when making a determination if these companies make sense as an investment.
And look at the usual issues: management, locked in contracts and business efficiency. Stop and really look.
Don't invest based on news headlines. Don't invest on panic. Or euphoria. Just because infrastructure spending is coming doesn't necessarily make infrastructure stocks the right investments right now.