Profiting from Obama’s Stimulus Plan
01/22/2009 11:00 am EST
Elliott Gue, editor of Personal Finance, finds an infrastructure stock that should do well under any stimulus package from the new Obama administration.
Regardless of whether you’re a fan of big government and federal spending or you have major reservations about the endless parade of bailouts and stimulus coming out of Washington, this isn’t the time to let ideology get in the way of profit.
The US and foreign central banks have already pumped trillions into the global financial and banking system. And, like it or not, the next wave of stimulus is on its way in the form of a massive increase in fiscal spending.
Some expect the Obama administration to propose a $1-trillion spending plan in its first few days in office, with major new initiatives in health and education to follow. Although the Job Creation and Unemployment Act of 2008 died in the Senate in September, many see the bill as a rough draft for the sort of stimulus plan the Obama administration will propose.
The bill called for major spending on transportation-related infrastructure, including new airports, supplemental funds for the Federal Highway Administration, and further investment in passenger railroads via Amtrak. In addition, the bill included measures to build new water infrastructure, flood control systems, schools, and electricity distribution systems.
Any Obama-backed stimulus package is likely to include a large amount of nonresidential construction spending. This should help offset the major decline in spending on residential housing during the past two years.
Engineering and construction giant Shaw Group (NYSE: SGR) operates in three main markets: power plants, energy, and environment and infrastructure (E&I).
The latter division, accounting for about 20% of Shaw’s revenue, stands to benefit most directly from any stimulus plan out of Washington, DC. As part of this division, Shaw builds transportation and port-related infrastructure, as well as water treatment systems and levees.
The biggest customer for E&I is the federal government. Shaw’s backlog of projects totals $5.1 billion in E&I, roughly a third of the company’s total. The company’s most important division is power plant construction; Shaw builds coal, gas-fired and nuclear power plants. And Shaw owns a 20% stake in Westinghouse Electric (majority controlled by Japan’s Toshiba Corp.—Editor), the firm behind half the nuclear reactors operating globally.
This division [also] stands to benefit from China’s massive stimulus and infrastructure development efforts. Shaw is trading at only a modest premium to the $11.10 in cash it has on its balance sheet. And close to 85% of Shaw’s $15.6 billion backlog of unfinished projects is booked with the US federal government, regulated utilities, and major oil companies. This customer base should push ahead with projects despite the ongoing credit crunch.
Shaw Group is a buy under $22. (It closed below $26 Wednesday—Editor.)Subscribe to Personal Finance here…