Wednesday, December 10, 2008

Investors Business Daily: Obama Says "Yes We Can Build" Infrastructure

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One thing about being ahead of the curve is you do not realize that patience is rewarded as the herd catches up. Again, I am completely boggled that this infrastructure "story" was "news" to everyone but apparently we can see why newspapers are dying a slow death - no one reads... scratching my head still since it was so obvious. Investors Business Daily chimes in on the man with the golden touch....
  • While the massive economic stimulus plan proposed by President-elect Obama should be a boon to engineering and construction stocks, how big of a boon won't be known until more details are trotted out -- or, for that matter, any details. (details, schmetails - we have a thesis! that's all that matters in the casino) That uncertainty hasn't prevented Wall Street from hitching its wagon to E&C firms as investors look for potential bright spots wherever they can find them. (boo yah)
  • Obama sparked a huge rally in the sector following his Sunday appearance on NBC's "Meet the Press," where he hinted at the largest U.S. public works spending program since the interstate highway system was established in the 1950s. (although he has said as much for 2 months... )A day later, the 25 stocks in IBD's heavy construction group rose more than 11%. They spent much of Tuesday pushing higher before finishing lower amid a broader market sell-off. The group is up 59% since hitting a 31/2-year closing low on Nov. 20.
  • Engineering and construction firms should reap many of the early rewards amid a government-led effort to create jobs and invigorate the economy by improving the nation's roads, bridges, schools and public buildings.
  • "Obama has made it clear he's going to spend considerable sums building up infrastructure, so that obviously plays into the strengths of companies like Fluor (NYSE:FLR - News), Jacobs (Engineering) (NYSE:JEC - News) and Caterpillar (NYSE:CAT - News)," said Dan Greenhaus, senior analyst in the Equity Strategy Group at Miller Tabak.
  • Gains have also occurred at international firms such as Japan's Komatsu, the world's No. 2 maker of construction machinery; and Tata Motors, India's top truck maker. (this guy is powerful - he moves markets the world over)
  • States face combined budget shortfalls of between $140 billion and $180 billion over the next two fiscal years, the National Governors Association estimates. While much of that money is needed to help fund Medicaid and other cash-strapped programs, a good chunk is also needed for infrastructure improvements. (ah don't worry about funding shortfalls - we have bridges to build!)
  • Obama, who hopes to pass the plan shortly after he takes office on Jan. 20, has said he wants nationwide programs to improve roads and bridges and make public buildings more energy-efficient. Spending will likely run into the hundreds of billions of dollars.
  • Putting the money to immediate use shouldn't be a problem, considering how many transportation projects are "shovel ready." (the pork should be fun to watch - we can only dream how many Butterfly Museums errr... I mean bridges will be built)
  • The bigger question is whether work doled out via a government stimulus program will translate into a big earnings boost for the companies that do it. That's no sure thing. Presumably, firms will have to engage in competitive bidding to win contracts. (that's not how things work under the current administration?) The lowest bidder might find itself with tighter-than-normal margins. (hey, we're trying to run the market up on a thesis - will you please stop with the factual content?)
  • And as Channel Capital's Roberts says, the goal is to provide jobs and boost the economy -- not jack up profits at corporations. "These are going to be government contracts, the kind that produce jobs but not necessarily profits," (shhh! thesis!) he said. "Since so much emphasis is put on job creation, there will be less emphasis on doing the work in the most cost-efficient and profitable manner." (truer words - never said)
  • Citigroup analyst Brian Chin said the stimulus package is not likely to be a "game changer" for most of the E&C firms under his coverage, which includes Fluor, Chicago Bridge & Iron (NYSE:CBI - News), Shaw Group (NYSE:SGR - News), Foster Wheeler (NasdaqGS:FWLT - News) and McDermott International (NYSE:MDR - News). "Shaw and Fluor are the only E&Cs in our group that have a significant presence in the infrastructure end markets likely to be affected by the plan," Chin wrote. "The vast majority of projects undertaken by the other E&Cs are involved in end markets" -- including defense, chemical, and oil and gas -- "with no likely stimulus package benefit." (Mr Chin - again, are you trying to kill this market rally with your sense? Listen buddy - money will flow from Obama's fingertips into every end market in the world, causing the heavens to part and gold coins to fall - this is how we all get rich. Enough with your doom and gloom "facts")
In a related note, Obama noted he enjoyed eating eating at Panera Bread (PNRA) - the stock is up 4,125% in 2 hours since this disclosure was made.

Long thesis; short reality

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