In this week’s Macro Theme update, we review “Reflation’s Rollover.” Last we...
Road to Reconstruction
09/30/2005 12:00 am EST
"In recent years, our portfolio has focused on our nation’s need to invest in its infrastructure," notes Neil George. "The aftermath of Katrina and Rita highlights this pressing need." Here, he offers an exceptional overview of the best long-term infrastructure plays.
"In the wake of Katrina and Rita, we’ve seen the damage wreaked on port, oil and gas drilling, refining, and transportation operations. And rebuilding the damage from the storms and flooding isn’t just a one-time blip. You need to focus on companies that aren’t just local one-deal wonders but are big enough to keep growing well after the media moves on to the next big story.
"Getting things up and running again is a
top priority. Two companies do this for a living. Shaw Group (SGR NYSE) is the company that Uncle Sam has used before
and is using now in the Gulf. Shaw specializes in coordinating emergency
response for disasters, which can include initial recovery to clean up and
reconstruction. Buy up to 28.50. URS Corp. (URS NYSE) bridges initial response with longer-term
reconstruction. It specializes in crucial transport infrastructure including
airfields, rail, and roadways. And it also knows how to take care of hazardous
waste, both from initial clean-up to long-haul maintenance. Buy under 42.
"Our massive economy demands big companies capable of planning and executing hefty projects that make the economy run. Three companies rise to the top of the list, starting with Halliburton (HAL NYSE). Sure, one can point to political favors, but from the Gulf of Mexico to the Persian Gulf, there’s no one that gets the bigger deals than this company. Buy Halliburton, even if you hate it, up to 70. Then there are Fluor (FLR NYSE) and Jacobs Engineering (JEC NYSE). Very few large-scale civilian projects get done without Fluor. And right behind it is Jacobs. Both are fat in new contacts in the Gulf. Buy Fluor up to 66 and Jacobs under 65.
"Darkness, bad water, and no power aren’t exclusive to the Gulf. For years, we’ve been pointing out the massive deficiencies around the entire US. German titan RWE (RWEOY Other OTC) is one of the big three in the water business. It is the sine qua non of the essential service sector and is a buy up to 80. Next is its German neighbor, Siemens (SI NYSE). It continues to get the call for everything from power plant construction, reconstruction, and expansion. Buy up to 93.75. And on the local level, getting power, water, and light working is Siemens’ regular partner, Emcor Group (EME NYSE). Emcor’s specialty is taking the essential services from the grid and network level to the local and facility level, whether in new plants or rebuilt facilities. Emcor’s low profile provides us with the ability to buy on the cheap up to 65.
"Finally, none of the aforementioned companies can get anything done without the building blocks that include rock and concrete. This segment includes three core buys — Martin Marietta Materials (MLM NYSE), Lafarge (LAF NYSE), and Cemex (CX NYSE). These three work together while they compete to provide the materials for new and rebuilt roads as well as building projects, including all aspects of new petroleum facilities’, seaports’ and airports’ crucial underpinnings. As a good foundation for any portfolio, buy a few shares of each—MLM under 74; LAF under 70.50; CX up to 54."
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