Legislative Catalysts

08/26/2005 12:00 am EST

Focus:

Neil George

Editor-in-Chief, Income Publication and Products, Agora Financial

"Often, it takes some catalyst or event to get investors to recognize a stock," notes Neil George . "Because we are in Washington, DC, I’ve chosen stocks that could see changes as a result of major pieces of legislation." Here are some stocks impacted by recent bills.

"These are companies where I see some interesting things happening in the relatively near future. You can have a great company doing great work that doesn’t necessarily have a great stock. Oftentimes, it takes some series of events of a general awareness to create an incentive for investors to go out and find the company and buy the stock. Along those lines, there are some interesting legislation-related catalysts that I think will drive some demand for some very specific companies. I’d note that you may not like the specific legislation. In many regards, I don't. But I’m not going to let that stop me from profiting from them.

"First, there is the energy bill, which will result in some major things happening. One is a big break for the utility sector. They now get to violate many, many environmental regulations to expand their production. The legislation will encourage companies to expand various power plants and distribution centers without having to bring these operations up to full environmental standards, and allowing them to violate the clean air and clean water acts. The company that is going to provide a lot of the stuff that will be used to expand this power capability is Seimens (SI NYSE). This is a big German company which is often referred to as the General Electric of Germany. This is one of the world’s primary suppliers and builders of power generation equipment and transmission and distribution equipment.

"The Highway transportation bill has a lot of pork in it, and just about every local town is getting something. But along the way, there are going to be some companies that will be cashing in like there is no tomorrow. As a result, they will be getting a lot of attention as they get new contacts. One such company is Sterling Construction (STV AMEX), a smaller outfit with a low price that may provide a lot of leverage. This is a road construction and paving firm. It’s really simple. They are excellent at getting municipal and state contracts. Who has all the cash in the transportation bill? Municipalities and states. And they are going to have to pave a lot of roads. The stock has gone up 400%, but don’t let that scare you. It is still trading at a discount of over 50% to its trailing sales, which are going to rise sharply from last year. I think the stock can still double from here.

"Also, we expect that we are going to get a lot of legislative easements on the refinery industry. We all saw the disaster in Texas, the third incident for British Petroleum. They will have to do a whole lot of rebuilding. There is not just a refining shortage in the US. There's also a refining shortage for diesel capacity in Europe. We expect some legislation in the near future regarding refining. One of the companies that I like is Maverick Tube (MVK NYSE). This company is based in St. Louis, and it makes tubes and steel pipes. You can’t make a refinery without buying their products."

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