How to profit from America's $3.6 trillion headache

The nation's sagging infrastructure is set to receive a major upgrade. Here are the best ways to benefit from this opportunity.

By StreetAuthority Apr 3, 2013 6:43PM
Image: New York City © David Pedre/Vetta/Getty Images By David Sterman                                     
 
The New York City area is
home to more than 25 million people --and nearly 1 in 10 Americans traverse its highways, byways and transit systems. As any resident of the area will tell you, the region's transportation infrastructure is getting older by the day.

That's why many New York metro residents are relieved to hear that construction has begun on a replacement for New York's Tappan Zee Bridge. The project will cost an estimated $5 billion to $6 billion, but failure to replace the bridge could cost the local economy much more in the long run -- and could even pose a danger.
 
Leading civil engineers consider this to be a rare victory for our nation's infrastructure, and in a recent report they suggested the United States would need to invest $3.6 trillion by 2020 to bring the nation's infrastructure to an acceptable level. That's nearly double the current projected budget.

These engineers gave our infrastructure a grade of D+, which remarkably is better than their last report, which I wrote about here.

In their current report, they slapped a C or D grade on most aspects of our infrastructure, and only our solid waste treatment plants received a grade higher than a C. Schools, roads, transit systems and drinking water systems all received a D grade, and these are among the most expensive areas to fix.

In recent years, funds for the repair and maintenance of aging schools have shrunk. The report suggests at least $270 billion would be required to bring the nation's schools up to code.

Let's be frank: The dysfunction of our government implies that we lack the political will to invest in the infrastructure we need and deserve. At this point, we can only hope that spending rises enough to bring the national grade to at least a C. Still, we are talking about hundreds of billions in annual spending to reach that point.

I wrote a follow-up piece in late 2012 with suggested investment angles. While the picks in that column still look like savvy plays on our nation's aging infrastructure, I've come across a few more ways to profit.

1. Infrastructure-focused mutual funds 
These funds have similar portfolios, and their long-term performances are unlikely to diverge.
  • Morgan Stanley Global Infrastructure (UTLAX)
  • Cohen & Steers Global Infrastructure (CSUAX
  • Forward Global Infrastructure (KGIAX
  • T. Rowe Price Global Infrastructure (TRGFX)
2. Low-cost exchange-traded fund (ETF) route
Most infrastructure ETFs focus on the global opportunity, including:
  • iShares S&P Emerging Markets Infrastructure Index Fund (EMIF)
  • iShares S&P Global Infrastructure Index (IGF)
  • SPDR FTSE/Macquarie Global Infra 100 (GII)
3. Water-focused stocks
Partly due to the poor grade our nation's drinking water systems received, and partly due to increasingly frequent droughts throughout the U.S. Southwest, it's wise to add water-focused stocks to your portfolio.
  • American Water Works (AWK) generates roughly $3 billion in annual sales through its management of more than 1,000 facilities for water treatment, storage and wastewater management.
  • Waters Corp. (WAT) makes water-quality monitoring systems and generates more than $300 million in annual free cash flow (on a sales base of less than $42 billion).
  • Watts Water (WTS) is a global provider of water flow control technology that helps aid conservation and boost water quality.
  • Lindsay Corp. (LNN) makes highly efficient irrigation equipment. The company's sales base doubled from fiscal 2007 to fiscal 2012 (to about $560 million), and analysts expect sales to rise 20% this year.
Risks to Consider: Continued neglect of our infrastructure would mean another lean year for these companies.

Action to Take: The longer the United States waits to address its infrastructure needs, the greater those needs will become over time. Policymakers appear to be making headway on contentious issues such as immigration and Medicare spending as part of a possible "Grand Bargain." If they succeed, lawmakers can move on to key challenges such as infrastructure, which appears to have bipartisan support. That makes this a good time to brush up on key infrastructure investment opportunities, as they may soon emerge as a key growth niche.

David Sterman does not personally hold positions in any securities mentioned in this article

More from StreetAuthority
1Comment
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

113
113 rated 1
279
279 rated 2
416
416 rated 3
647
647 rated 4
548
548 rated 5
513
513 rated 6
669
669 rated 7
516
516 rated 8
317
317 rated 9
113
113 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
UPLULTRA PETROLEUM Corp10
TAT&T Inc9
COPCONOCOPHILLIPS9
DVNDEVON ENERGY CORPORATION9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.