by Tom Konrad
Last February, I wrote "[Since] I expect the Fed-induced reprieve to be fairly short lived, [here are] ten solid companies I’d be happy to buy more of if and when the bottom really falls out of the market." When I wrote those words, the Dow Jones Industrial Average was over 12,700. Now, it’s around 8,500, and I doubt anyone remembers the "Fed-induced reprieve" I was referring to. The "bottom fell out" in September and October.
On October 12, with the DJIA at 8451, I wrote "I don’t know where the market will go from here, but I now feel that we’ve seen the worst of what is likely to happen, even if the market has farther to fall." With the market gyrating wildly but basically treading water since then, I still feel that many companies (if not the market as a whole) have seen their lows. However, like my partner Charles, I’m interested in investing in companies which are likely to benefit from the stimulus. I think energy efficiency stocks and electric grid infrastructure stocks are likely to be good bets, but I’m leery of any companies which depend on the consumer.
This is a reexamination of those companies in the new context. The company names link to the articles where they were included in the series.
One of the major points which the President-Elect outlined for his stimulus plan was an energy efficiency overhaul for government buildings and schools. Hence companies which sell services and equipment for building retrofits should be well placed to take advantage of these programs. Such companies include Johnson Controls (JCI), General Electric (GE), Owens Corning (OC), Philips (PHG), United Technologies (UTX), Waste Management (WMI), and Honeywell, Inc. (HON).
During his campaign, Obama put much emphasis on the Smart Grid, but less on long distance power transmission, which I believe to be at least as important. Fortunately, Steven Chu, Obama’s pick to head the Department of Energy, is a strong advocate of transmission, and it also has support from Senate Majority Leader Harry Reid. I am now fairly confident that, even if the initial stimulus package does not contain large spending on transmission, a more robust national electric grid is in our future. From my list of Solid, Clean picks, those companies best positioned to benefit from this sort of spending are Quanta Services (PWR), General Cable (BGC), Siemens (SI), The ABB Group (ABB), and National Grid (NGG). Quanta and General Cable perhaps the best positioned of these.
All of these were included in my partner Charles’ list of companies well placed to benefit from electric infrastructure spending. Given Obama’s enthusiasm for the smart grid, it might also be worthwhile to consider these metering and energy management stocks.
Roads and Rail
Any spending package is likely to include considerable spending on roads, and, many of us hope, rail as well. Not being a fan of the car, I generally don’t pick road-building stocks, but one of my favorite rail picks, Trinity Industries (TRN), owns a leading producers of concrete, aggregates, and asphalt in Texas and neighboring states and the only full-line US manufacturer of highway guardrail and crash cushions, meaning that they are very well placed to benefit from the stimulus. My other rail pick, Greenbrier (GBX), seems less well placed because they are primarily in railcar leasing, which I don’t expect to get immediate benefit.
Although General Electric (GE) and Philips (PHG) may benefit from building retrofits, they are likely to be weighed down by their exposure to the suddenly frugal consumer. My solar pick Sharp (SHCAY.PK), also has this problem, without many obvious ways to cash in on other spending.
My remaining February picks, John Deere (DE), and Applied Materials (AMAT) don’t have any obvious way to cash in from a stimulus package, but don’t seem overly exposed to consumers, either.
DISCLOSURE: Tom Konrad or his clients have long positions in JCI, GE, OC, PHG, WMI, HON, PWR, BGC, SI, ABB, NGG, TRN, GBX, DE, and AMAT.
DISCLAIMER: The information and trades provided here and in the comments 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 here.