Happy return from Thanksgiving! I come back to my Gumshoe friends well-rested, with an expanded waistline and a sudden need for daily afternoon naps… and, as will be no surprise to most of you, with an inbox full of money-making promises to review.
Because every shift in the political winds must come with an investable “story,” many folks are talking up “infrastructure” these days as a play on the incoming Trump presidency. He boasted of trillion-dollar infrastructure investments in bridges, highways, airports and the like… and, among other expected investment impacts, that leads to expectations of fat order books for construction companies.
So that’s where the latest pitch from Brad Hoppmann comes in — he’s selling his Global Trend Trader newsletter service ($1,290/year), and as part of the carrot to get you to pull out your credit card he offers up a “special report” called Three Immediate Ways to Play the $78 Trillion Boom Cycle.
On the off chance that you don’t feel like ponying up a hundred bucks a month for Hoppmann’s newsletter, we’re going to throw our hook into the pool of clues that he pours out for you and see if we can catch any winners. Or, at least, see if we can identify them for you.
So let’s jump right to the clues, shall we? You’ve probably seen plenty of folks talking about the disastrous state of infrastructure and the huge need for new investment, both here in the US and around the world, so we’ll skip over that bit (though I’ll also remind you to consider questioning just how calamitous our infrastructure in the US really is — for the past 30 years there have almost always been claims that our highways or water systems or public transportation systems are starved for funding and falling apart and outliving their useful or designed life, and that’s very likely true to some extent and in a lot of specific examples, examples that tend to be terrifying and memorable because they involve water system shutdowns or bridge collapses that make headlines… but sometimes those motivated to express their dismay about the nationwide infrastructure calamity are either state and local government officials trying to convince the Feds to suck up the cost, or construction and engineering professionals who are probably rightly worried about the risks of aging buildings and bridges and pipelines… but who are also incentivized to create more work for themselves).
So anyway, the clues:
“In fact, I’m currently recommending three specific infrastructure investments that could easily hand you quick capital gains of 400% or more …
“But it’s critical you act quickly!
“Infrastructure Investment #1 — The Most Complete Energy Infrastructure-Focused Company in the World!
“The first company I’m looking at has over 125 years of experience providing a wide range of services including design, engineering, construction, fabrication, maintenance and environmental services.
“The people of the world will demand more and more electricity and this company designs, builds and maintains every kind of energy infrastructure there is.
“In other words, it is in the perfect position to reap huge profits as the world pumps $78 Trillion into the exact kinds of projects this company does best!
“In the next few months, this investment could easily rise 95% just based on its solid fundamentals … and as the $78 Trillion Boom Cycle really gets under way it’s not unreasonable to expect capital gains in the triple or even quadruple digits!”
Why 95%, you ask? Is it that 100% seems too aggressive?
This is, sez the Thinkolator, the old infrastructure favorite Chicago Bridge & Iron (CBI), which despite the old-school name that conjures up giant metal bridges is indeed a construction and engineering firm that’s primarily focused on the energy sector… building refineries, pipelines, power plants and the like.
CBI had a nice little bump up going into the election, since both candidates were active in talking up infrastructure projects — and even though voters have been reminded over and over not to believe the promises of politicians, investors do remember those promises, and they believe them. So although CBI has been in a rough decline over the past two years because lower oil and gas prices depressed demand for new energy projects, the promise of a new political leadership brought some hope even before the election… and after the election, with Trump winning and promising his “huuuuge” infrastructure investments that would be twice or four times what Clinton had proposed, the stock popped up a little further still.
It’s still not particularly expensive, despite the fact that it has recovered pretty strongly over the last couple months — the shares trade at about 7 times forward earnings… and analysts think earnings will be pretty much flat over the next few years in the $4.50-4.80 neighborhood, so that’s about the same PE whether you’re talking about 2016, 2017 or 2018 earnings. Lack of growth is clearly what’s keeping CBI down right now, but what drove it down was clearly the collapse of energy prices in 2014 and 2015 — and that’s not going to turn on a dime.
There won’t be any new infrastructure spending flowing to CBI in 2017, and probably not in 2018 either, these kinds of large projects take a lot of time to get going… what could change is the expectation for the future, and that can change quickly if there are indeed massive spending bills passed or big orders placed here in the US or overseas for CBI work, so it is certainly possible for the stock price to move well in advance of actual earnings increases if expectations increase quickly. And expectations could also collapse again, of course, if the economy slows and more projects get canceled.
I’d agree that CBI is one of the first places I’d probably look for a direct play on infrastructure, partly because it’s also impacted by energy prices that could benefit from inflation (if massive new spending projects finally do help bring a bit of inflation into the economy, as interest rates are trying to predict), and partly because it tends to be a stock that hedge funds focus on whenever anyone says the word “infrastructure.” I don’t know whether the stock will boom, but thanks to the lack of earnings growth in the forecast it is one of the relatively few stocks that could rise 95% in price on shifting sentiment and still trade at a PE multiple that looks inexpensive compared to the S&P 500 average, without really even needing a big boost in 2017 earnings estimates, so it’s certainly within the realm of possibility if energy prices improve and expectations of infrastructure spending become more aggressive (or more real). A 95% rise in CBI’s share price would put it at $64, which would give the stock a forward PE of about 14.
“Infrastructure Investment #2 — The Massive Natural Resource Infrastructure Company That Leads the Industry in Science and Technology.
“This company serves public and private clients by addressing the fundamental needs for water, natural resources, environmental services, infrastructure and energy.
“Its solutions span the entire life cycle of the project and include applied science, research and technology, engineering, design, construction management, construction, operations and maintenance, and information technology.Are you getting our free Daily Update
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“It has been ranked number one in the water industry by Engineering News-Record magazine for 12 years in a row.
“And this company will use its state-of-the-art science and technology to undertake massive projects that ensure rising global demand is met with a plentiful supply by providing water and agriculture services.
“It’s already been in business for more than half a century, and you can be sure it will be taking its share of the $78 Trillion pie by the truckload.
“In fact, it wouldn’t surprise me one bit to see this company’s value triple as investors fully grasp how much money it stands to make from the world’s growing need for water solutions.
“So buying just this company alone could possibly see you through a comfortable retirement.”
That’s Tetra Tech (TTEK), which, unlike CBI, is on a roll and at all-time highs after coming close to doubling this year — with the last little spurt coming, no surprise, on the heels of the election a few weeks ago. Also unlike CBI, TTEK is seeing pretty strong earnings growth right now and is expected to have earnings growth of at least 15% a year going forward, so, naturally, it’s more expensive — investors always pay up for growth, as long as they believe the growth is real, so at $43 TTEK is trading right now at about 20X next year’s forecasted earnings.
We’ve got another stock to name, so I’m going to move on quickly — if you’d like to fill in some info about TTEK for us, feel free to do so with a comment below. What’s our third candidate?
“Infrastructure Investment #3 — A North American manufacturer of large diameter, high-pressure steel pipeline systems that’s ready to jump 145% in short order … and possibly 500% or more over the longer term!
“My third recommendation has two segments and a whole range of business lines …
“It manufactures other welded steel pipe products for use in a range of applications, including energy, construction, agriculture, and industrial uses.
“Its pipelines are also used for hydroelectric power, wastewater systems, and other purposes.
“Plus, the company makes products for industrial plant piping systems and certain structural applications
“In short, this red-hot company is diversified, with a wide variety of applications all over the country.
“Best of all, it’s an American company that produces and supplies the very infrastructure products the U.S. needs most.
“There are an estimated 240,000 water main breaks per year in the United States.
“Pipes and mains are frequently more than 100 years old.
“America will replace these over the next few years out of necessity.
“And it will take an estimated $1 trillion to do it.
“No other company is in a better position to grab the lion’s share of that money!”
This one, sez the Thinkolator, is almost certainly Northwest Pipe (NWPX), which is the baby of this bunch — it’s a very small and focused manufacturer, almost exclusively selling steel pipes for water, with customers largely concentrated in municipal water systems but also selling into industrial and power applications (moving water inside power plants, etc.)
And I have never, ever looked at or even heard of this one before — so that’s interesting, and makes me want to poke around a bit, but time is short for today so I’ll just tell you that something bad happened to this one that coincided with the collapse of CBI… whether that’s because they have some exposure to energy projects or not, I don’t know, but even after a strong move up this year (the shares have doubled since the February lows) the stock is still, at about $18, down about 50% from its highs in 2014.
And it’s also unprofitable and expected to remain so next year, though there is only a single analyst providing that forecast (it’s only a $180 million company, so it doesn’t get much analyst attention) — so if that analyst is spot-on then the shares are trading for about 45X 2018 earnings. That’s a fair amount of optimism, particularly for a company that has, from a quick browse of the financials, a pretty long history of very tepid profit margins. I don’t know whether steel pipe is a particularly competitive market or not, but they’ve only been profitable about in about five of the past ten years and have lost money every year since 2012… with record losses in both 2014 and 2015. The trend has not yet turned in their favor, last year they had the lowest sales they’ve posted since 2005, so either they’re in the middle of a turnaround that has a lot of investors starting to get excited or there’s just a lot of “story” excitement sending investor money into infrastructure stocks.
I’d want to research this one much more fully before even thinking about investing in it, because the “story” about replacing municipal water pipes is interesting but the financials are not yet telling us that anyone is all that jazzed up about ordering the pipes… at least from Northwest Pipe. So maybe my mind will change as I look into the reasons why their financials have been so terrible for the past few years, but for now I’m not excited enough to chase the stock in these post-election spikes. If you have any experience with NWPX, please let us know with a comment below.
And that’s all for your $1,290 “buy these infrastructure stocks” pitch from Brad Hoppmann — please jump aboard with a comment if you have an opinion or any research to share on these three stocks, or let us know if you’ve got other infrastructure investing ideas… and thanks for reading!