Two weeks ago, I brought you the first of a series of two articles on how
you can play the clean infrastructure build-out that could come as a result
of an Obama victory
today. In that article, I made the point that the political and economic
ideology that had prevailed in America over the past 30 years,
had been severely undermined by the recent credit meltdown and what now looks
like it will be the worse economic shock in a generation or more. I further
argued that the increasing sidelining of the "small government" discourse in
American politics in the wake of this crisis would provide the impetus for an
overt return to a Keynesian approach to dealing with recessions, whereby the
government would directly undertake expenditures in the economy to jump-start
Finally, I linked this to
environmental and clean energy credentials, and argued that under his watch,
a massive, federally-mandated infrastructure spending program would certainly
contain environmental and clean energy components.
Much has happened since I wrote that first article. Firstly, Allan Greenspan,
arguably the most influential free-market thinker of the past four decades,
shocked the world by admitting that the
on which he had relied for the better part of his professional life had been
proven "flawed" by the crisis. This admission represents the loss of a major
pillar for the intellectual edifice of the Free Market. Second,
state and municipal officials' calls for an economic bailout package grew
louder last week, with demands ranging from infrastructure spending to direct
help in meeting budgetary shortfalls. Thirdly, a plethora of metrics are now
pointing toward a significant softening of the economy in the coming quarters,
not the least of which is a
record drop in consumer sentiment. Lastly, barring a major onslaught of the
Bradley Effect, Obama
looks nearly certain to win the presidential contest, and there is a very real
possibility that the
Democrats could emerge with a filibuster-proof majority in the Senate,
giving the new president a significant amount of leeway in moving swiftly on an
counter-cyclical spending agenda.
In light of what I just highlighted above, I continue to believe that clean
infrastructure on the back of government intervention is a potentially
interesting theme. There are, of course, some pretty significant risks to this
thesis. Firstly, the US is in
fiscal position to launch into a multi-billion dollar economic bailout
effort. Second, although credit markets are slowly thawing, my commercial and
investment banker friends will readily share that accessing capital for
companies remains a daunting task, government contract or not. Lastly, local
content provisions aimed at boosting the domestic
could eliminate many foreign companies from being eligible for money.
Stocks For The Clean Infrastructure Build-out, Part 2 -
Electricity Transmission & Distribution
In the first article of this series, I discussed rail power stocks. In this article, I discuss stocks in the second major area of infrastructure that alt energy investors have an interest in: electricity transmission and distribution. As with the first instalment, I did not do an extensive amount of research on most of these companies, so I welcome any insight readers may have. As with rail stocks, I looked for firms that would benefit from spending
programs - i.e. suppliers and contractors - rather than companies that operate
transmission systems. A decline in industrial production and a weak economy in
the US could spell lower volumes for power generators and distributors in
certain states with a high concentration of heavy industries.
ABB Group (ABB) - Financial
here. ABB has exposure to a number of areas related to transmission and
distribution systems. The company makes cables, transformers and various other
products related to power electronics and management. ABB is also a leader in
providing power equipment for wind farms, including in the
emerging area of offshore wind. This is a stock that has gotten blasted in
the past few months on worries over significantly weaker infrastructure spending
around the globe, and is down about 60% from its high in April of this year. ABB
now trades at a last-twelve-month (LTM) PE of around 6.8x, which is cheap by
Allegheny Technologies, Inc. (ATI)
- Financial statements
Allegheny is not as pure a play on transmission as ABB is, but it nevertheless
produces some products with grid applications. Among them are a number of
specialty alloys and metals for transformers and efficient grids. Allegheny also
produces iron castings for wind turbines. At a TTM PE of about 4.5x, this is
also a down-and-out stock that has taken a beating.
Composite Technology Corporation (CPTC.OB)
- Financial statements
here. Composite is commercializing an
innovative transmission cable solution, and has a
wind power division
that produces utility-scale turbines. However, this is an earning-less stock and
those aren't for the faint of heart in the current market environment.
General Cable (BGC) -
This company that makes a range of cables, including transmission and distribution
cables of different voltages and underground cables. This is a very direct play
on cables, as the name indicates. At an LTM of about 3.8x, this stock is trading
squarely in cheap territory.
MasTec Inc. (MTZ) -
MasTec is a subcontractor to the utilities and communication industries,
building, installing and maintaining electricity transmission infrastructure.
The company is earning-less.
Quanta Services (PWR) -
here. Quanta is also a contractor to the power transmission and distribution
industry, with services including infrastructure design, installation and
maintenance. At an LTM PE 23.81x, this is a stock that would be too expensive
for me in the current market environment, especially that it doesn't pay a
Resin Systems (RSSYF.OB
or RS.TO) - Financial
Resin Systems makes composite utility poles for electricity transmission and
distribution. Composite materials aren't ubiquitous for utility poles just yet,
with wood, concrete and steel still dominating. However, as in other
applications, composites probably hold a decent amount of potential. Here, we
have an earning-less company trying to set new standards - probably a tall order
in this environment.
Schneider Electric (SBGSF.PK)
- Financial Statements
here. Schneider provides a range of products related to electricity
management, distribution and transmission. It is a direct competitor of ABB's.
One interesting factoid about Schneider is that it recently acquired
Xantrex, a leading maker of power
inverters and converters for the wind and solar industries. At an LTM PE of
6.6x, Schneider is valued similarly to ABB...no big surprise here.
Siemens (SI) - Financial
here. Siemens makes a range of products for the power transmission and
distribution sector, including switchgear, transformer and substations. The
company is also a leading manufacturer of utility-scale wind turbine. It is
currently trading at a TTM PE of 5.4x.
Valmont Industries (VMI)
- Financial statements
Valmont makes transmission and distribution poles from concrete, steel or a mix
of the two.
DISCLOSURE: Charles Morand has a position in ABB.
DISCLAIMER: I am not a registered investment advisor. The
information and trades that I provide here are for informational purposes only
and are not a solicitation to buy or sell any of these securities. Investing
involves substantial risk and you should evaluate your own risk levels before
you make any investment. Past results are not an indication of future
performance. Please take the time to read the full disclaimer