10 Solid, Clean Companies Ready for Stimulus, And 5 That Aren't

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 Morand, 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.

Building Retrofits

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).

Grid Infrastructure

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 U.S. 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. Nevertheless, both of these companies have substantial debt. If they are unable to roll it over, the extra revenue from a stimulus package may not mean much.

Last month, Charles brought you his list of four rail stocks he thinks could benefit from a stimulus.

Consumer Goods

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.

Others

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.

Comments

[Market Folly:]

good list of companies for sure. we like PWR going forward but are cautious near-term because Jeffrey Gendell's Tontine Partners had a position and some of his hedge funds are liquidating (we track hedge fund portfolios on our blog). so, we want to make sure all the forced selling is done: www.marketfolly.com/20...

2008 Dec 17 10:45 AM

[jack kreg:]

we need to raise gas taxes a bunch, it will take many years to pay for all this clean and green stuff, so we had better get started.
Maybe, just a flat tax on all gas and electric bills, say at $25/month.
Maybe, a few bucks a gallon for climate research and development.
Most home owners and car drivers have disposible income to pay for such global clean and green initiatives.
In the end, consumers will pay for all of these wonderful save the globe initiatives.
Consumers hold on to you wallet, the green folks want your folding green!!

2008 Dec 17 11:04 AM

[Universal H...:]

I can suggest a few more companies likely to benefit from the "stimulus spending": HR Block, Jackson Hewitt, Liberty Tax, Intuit (makers of Turbo Tax) and any other company who benefits by assisting the roughly 52% of us who pay taxes and will have to foot this bill for decades...

2008 Dec 17 11:46 AM

[Freedoms Truth:]

"we need to raise gas taxes a bunch, it will take many years to pay for all this clean and green stuff, so we had better get started.
Maybe, just a flat tax on all gas and electric bills, say at $25/month. "

Yeah, great way 'stimulate', take remaining buying power by taxing everyone even more. that, plus the CO2 regulations is killing utilities, etc. Maybe instead we should just save money on the egregious and wasteful govt programs like ethanol subsidies and let people keep more of their own money.

2008 Dec 17 12:38 PM

[Chris B:]

A better idea might be to pay for it by removing the billions of dollars in direct and indirect subsidies to coal, ethanol, and oil corporations, starting with an end to spending a billion dollars a day fighting self-perpetuating wars in the middle east to secure access to cheap oil (funny, it WAS cheap before we started doing all that).

As far as taxes are concerned, we should raise taxes on the behaviors we want to discourage and lower taxes on the behaviors we want to encourage. Is that really all that controversial? Doesn't matter - economic research shows it works. So if you want to build an economy where we are less dependent on jihadist-produced foreign oil but where people have the incentive to work to earn more income, raise gasoline taxes and cut income taxes.

2008 Dec 18 11:28 AM

[frflyer:]

The comments about footing the bill are misleading.
The Google plan shows an overall economic gain .

Another study showed a slight loss in GDP. The equivalant of reaching $23 trillion GDP in April rather than in January, of some year in the 2020s.

It's ok to give $40 billion a year to oil companies though, right?
That's a conservative estimate. One estimate is $84 billion/year.
Coal gets $3 billion a year.
nuclear is subsidised at 4-8Cents /kWh

2008 Dec 18 01:37 PM

[DudeKabob:]

I'm trying to think of a company that DOESN'T depend on the consumer. All companies - indeed, all economies - depend on the consumer. Without a consumer, there would be no reason to produce a thing. Every time I hear someone complain that the U.S. economy is dependent on the consumer, as if were some sort of unique and singular curse, I question what is really being said, or if the person speaking has any real notion of what it is that makes an economy function.

2008 Dec 19 12:11 AM

[Tom Konrad:]

DudeKabob:
The distinction I'm trying to draw is between consumer DISCRETIONARY spending and NONDISCRETIONARY spending. There's a big difference.

2008 Dec 28 01:33 AM