On Friday, President-elect Barack Obama said that his top priority was to get a new economic stimulus plan passed. Yesterday, China announced its own $600 billion stimulus plan with an emphasis on infrastructure and public works. On the news, the energy, telecom, industrials and materials sectors all initially jumped over 1.4%. Some of the biggest gainers were:
- Peabody Energy
- Nabors Industries
- Alcoa
- Emerson Electric
- Newmont Mining
Joshua Duitz, Portfolio Manager of the recently launched Alpine Global Infrastructure Fund, believes these government steps will serve as a catalyst that will accelerate infrastructure investment. "Government spending will be the first phase of a two part process," Duitz said. "The stimuli will get things started, but ultimately it will not be enough. In a recession, municipalities will need more funds and will be forced to privatize more of their infrastructure. We have already seen the sale of the Indiana Toll Road and the Chicago Skyway. Now we see Chicago's Midway Airport for sale."
In the longer term, Duitz believes the owners of these privatized assets will outperform. Companies like Spain-based Cintra will benefit because of their experience in the US. Another Spanish infrastructure player, Abertis, could be another winner as they have demonstrated an ability to raise cash in the US when they partnered with Citigroup's Infrastructure Fund to raise $12.8 billion in an attempt to buy the PA Turnpike.
In the shorter term, Duitz recommends investors look at the construction and engineering players to benefit from China's stimulus. "While China Railway Construction Corp jumped 20% on the news, I worry that a large portion of their backlog is coming from projects outside of China. With an Obama administration, domestic energy infrastructure plays will help companies like McDermott International and Spain-based Gamesa, a manufacturer of wind-generators. Jacobs Engineering could also do well."
"The IT infrastructure will also benefit and more quickly," Duitz added. While it can take some time for construction permits, if the infrastructure packages include some productivity initiatives, companies like Cisco will be sure to benefit.
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