Someone has to get all that money, right?
That’s one possible take on what has become a global phenomenon: the stimulus program as a response to a struggling national or regional economy. In his State of the Union address, January 27 this year, President Obama discussed a second US stimulus package, on top of the $787 billion (Recovery Act) pledged during 2009. China has presented a $587 billion stimulus plan, which represents 20 percent of its GDP. Other governments around the world are following suit.
One working assumption is that the bulk of the stimulus money will go to construction projects, particularly the “shovel ready” projects focused on infrastructure—roads, sewers and water treatment systems, bridges, schools, hospitals and public buildings. And President Obama stressed his preference for “green” projects, including “smart” electrical grids and energy-efficient buildings.
Money Morning noted that global infrastructure spending could reach $35 trillion over the next two decades (http://moneymorning.com/2009/02/05/infrastructure-stimulus-2). According to some analysts North America will spend $180 billion on infrastructure each year, Europe will spend $205 billion, Asia will spend $400 billion and $10 billion will be invested in Africa annually. If you still need convincing, here is a worldwide inventory of infrastructure spending plans (http://www.international.gc.ca/canadexport/articles/90121h.aspx).
Back to who will benefit, particularly small caps. How about global cement and engineering-related companies such as Texas Industries (NYSE: TXI), or Michael Baker (NYSE Amex: BKR), U.S. Concrete (Nasdaq: RMIX), Sterling Construction (Nasdaq: STRL), Orion Marine Group (NYSE: ORN) and also an international cement engineering company doing most of its business that is outside of the USA: KHD Humboldt Wedag (NYSE: KHD).
Texas Industries (NYSE: TXI, http://www.txi.com), at a market cap of about $940 million, engages in the production and sale of heavy construction materials in the United States. TXI operates in three segments, cement, aggregates, and consumer products. It serves the public works, residential, commercial, retail, and industrial and institutional construction sectors, as well as the energy industry. TXI traded Friday at $33.97 vs a year-high of $47.33, with average volume of nearly 300,000 shares
Michael Baker (NYSE: BKR, http://www.mbakercorp.com/), at $350 million market cap, provides professional engineering and consulting services for public and private sector clients worldwide. Its markets include aviation, defense, environmental, facilities, geospatial information technologies, homeland security, municipal and civil, pipelines and utilities, transportation, and water. The company offers various design and related consulting services, including program management, design-build, construction management, consulting, surveying, mapping, geographic information systems, architectural and interior design, among other services. BKR was trading Friday at $39.46, vs a 52-week high of $44.67 on average volume of 47,000 shares per day.
U.S. Concrete (Nasdaq: RMIX, http://www.us-concrete.com/), is small at $39 million market cap, but customers include contractors in commercial and industrial construction, street and highway construction, and other public works and infrastructure. RMIX produces and sells ready-mixed concrete, precast concrete products, and concrete-related products in the United States. Its products include ready-mixed concrete; stone, sand, and gravel aggregates; building materials, such as rebar concrete block, wire mesh, color additives, curing compounds, grouts, and wooden forms; concrete masonry; and other products and tools used in the construction industry. RMIX was trading at $0.91, vs a year-high of $3.15, probably reflecting a their substantial loss as of Sept 30, 2009 on a significantly lower revenue level, reflecting financial conditions that may have ameliorated somewhat since Sept 30. RMIX trades nearly 700,000 shares a day on average.
Sterling Construction (Nasdaq: STRL, http://www.sterlingconstructionco.com/), at $300 million market cap, has a customer list including county and municipal public works departments, regional transit and water authorities, port authorities, school districts, and municipal utility districts. STRL is a heavy civil construction company and, through its subsidiaries, engages in the building, reconstruction, and repair of transportation and water infrastructure. Its transportation infrastructure projects include highways, roads, bridges, and light rail; and water infrastructure projects comprise water, wastewater, and storm drainage systems. The company also provides general contracting services. STRL was trading at $19.50 on Friday, vs a 52-week high of $20.99, on average volume of about 125,000 shares per day.
Orion Marine Group (NYSE: ORN, http://www.orionmarinegroup.com/), at $500 million market cap, has customers including federal, state, and municipal governments. Orion services the heavy civil marine infrastructure market. They provide a range of marine construction and specialty services on, over, and under the water along the Gulf Coast and the Atlantic Seaboard, as well as in the Caribbean Basin. ORN traded at $19.00 on Friday, up 6.5%, on average volume of 300,000 shares and a market cap of 508 million.
KHD Humboldt Wedag* (NYSE: KHD, http://www.khdhumboldt.com/) is poised to split into two separate companies, pending regulatory and shareholder approval. The current company at $400 million market cap., has a cash-heavy balance sheet, an operating business in engineering & construction (E&C), and a royalty stream from the mining and sale of iron ore at a mine in Newfoundland. The company intends to spin out the E&C operation in a one-for-one distribution to shareholders, and to change the name of the NYSE-listed company to Terra Nova, which will become a royalty-centered company with intentions to broaden its royalty portfolio. The cash split has been proposed as $113 million to Terra Nova and $295 million to the spinout of the E&C company. The E&C company designs and develops plants and machinery for producing cement, largely in developing economies such as India, south Asia, the Middle East, and the former Soviet Union, with some customers in the governmental sector and others in the private sector. KHD traded at $12.84 Friday, vs a year-high of $16.10, on volume of 275,000 shares per day, and a market cap of $389 million. — M Lucarelli
*client of Allen & Caron, publisher of this blog