Profiting from the Roadway Crunch

10/17/2007 12:00 am EST

Focus: STOCKS

Neil George

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

Neil George, editor of Personal Finance, says a massive rebuilding of US infrastructure is in the works, and he names two stocks that should benefit.

Roadways and bridges around the US are in terrible shape. They’re overcrowded, worn out, and, as recent tragic events make clear, even deadly.

Words like “infrastructure” immediately call to mind tax-and-spend policies, and few folks beyond wonks and lobbyists take notice.

But Texas A&M University’s Texas Transportation Institute (TTI) reveals that there’s a genuine problem—with real solutions that go beyond feel-good, pork-barrel spending.

According to TTI’s 2007 Urban Mobility Report, passenger and commercial traffic is growing 45% faster than capacity. Traffic snarls are costing us 4.2 billion hours of lost time in just the top 14 urban areas of the US. And as we sit, we’re blowing more than 2.9 billion gallons of petrol, equal to about 60 fully loaded tankers.

We’re talking about more than $78 billion lopped off the top of the US economy. Losses are mounting, by $12 billion over the last five years, $7 billion in the last two alone. Congestion is worsening, and its impact is deepening. And those numbers don’t account for tragic losses of life due to accidents on our crowded roadways and disasters such as the I-35 bridge collapse in Minneapolis.

Congress is forming legislation that would nearly double the billions already allocated in the current federal budget to roadway and bridge spending. And state governments are biting bullets to come up with new, overdue transportation spending plans.

There are two major ways we’re collecting cash from the US roadway crunch and similar troubles worldwide. The first involves companies that are getting the contracts to build, expand, or repair the roads, bridges, and the rest of the underpinnings of our transportation infrastructure.

Martin Marietta Materials (NYSE: MLM), which was spun off from the aeronautical engineering company Lockheed Martin (NYSE: LMT), is the best in the business. It is now one of the top two players in its space: it’s working on projects in 31 states. It sells more than 200 million tons of aggregate (which forms the base of every project) each year, and that number is rising at a steady rate of nearly 13% annually.

Margins are running at more than 18% and are increasing by more than 11%. The more MLM sells, the more its profits climb. And it’s cheap: the shares have yet to catch up to the value of its book of business. Buy MLM up to $150. (It closed below $132 Tuesday—Editor.)

Next are the companies that do the work: Sterling Construction (NASDAQ: STRL) Sterling has the know-how and the contacts to keep [road-construction] deals coming. Its understanding of how legislatures and town halls operate is a key part of its long-term success.

Sales are climbing by more than 39%. And once Sterling establishes a relationship, it gets callbacks for more work; repeat business is 100%. Buy STRL up to $27. (It closed above $25 Tuesday—Editor.)

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