Wall St Week Ahead-Investors green-light infrastructure trade, but expect road bumps

From Reuters - January 11, 2018

NEW YORK (Reuters) - Volatility awaits shares of U.S. construction, engineering, building materials and other companies tied to infrastructure spending, but steel-nerved investors could be poised for gains if they weather a few bumps.

The stocks are set to be in focus in the coming weeks as President Donald Trump seeks legislation geared at overhauling the countrys aging roads, bridges and other infrastructure, fresh off passage of a tax reform bill by his Republican party.

A bipartisan group of U.S. senators met with administration officials this week to discuss legislation to spend $1 trillion to improve infrastructure.

An infusion of federal spending is expected to boost infrastructure-sensitive companies, but the stocks could see a rocky performance as a bill maneuvers through Congress and details of any legislation emerge.

Improving the countrys infrastructure, which last year was given a failing grade by the American Society of Civil Engineers, has broad appeal.

Still, while some Democrats want such a bill, political differences may undermine the effort and affect the amount of private sector investment.

Regardless of federal legislation, however, investors and analysts see a favorable climate for such stocks, including the need for an upgrade of national infrastructure, an expected spike in earnings for many companies this year, and positive economic trends that support investment in big projects.

There is money flowing in this area even if you dont get the big federal one, said Walter Todd, chief investment officer at Greenwood Capital Associates in Greenwood, South Carolina. That would just be icing on the cake if that happened and would really flow through to these stocks.


Todd says his firm is overweight infrastructure-related names, including owning civil contractor Granite Construction Inc, building materials companies Eagle Materials Inc and US Concrete Inc and steel company Nucor Corp.

Those shares and other construction-related names soared in the immediate aftermath of Trumps November 2016 election, spurred by his campaign vow to spend on infrastructure.

But while the benchmark S&P 500 stock index has been on a steady ascent since Trumps election, construction-related stocks in particular have endured a rollercoaster ride, whipsawed in part last year by uncertainty over Trumps agenda.

Even with outsized gains over the past two months, the infrastructure trade has posted lukewarm returns since just after Trumps win.


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