There is a $600 billion infrastructure stimulus going on in China and rightfully so; this kind of stimulus creates jobs and value. Lucky for the Chinese, they do not have the same enormous debt and financial mess to deal with as the US, which is why they can easily proceed to growth issues. The Chinese are jumpstarting the boat, while the US is plugging the holes.
With the US unemployment rate running at 9.7%, Americans must now work overseas or be ready to be overqualified in their next job if they want to stay, or be ready to work for the government. Statistics show that the government pays well on average compared to other corporate jobs.
Infrastructure spending does create jobs. Chief Department of Transportation Economist Jack Wells said in an interview at the beginning of this year that 28,000 jobs will be created for every $1 billion spent on highway construction spending. It is really that phase where growth that came from consumer spending is now being replaced by public spending. It can be expected that as the private consumer postpones his spending and saves, the government will continue its spending binge over the next few years; that is why it is important that the government spends those dollars wisely in fixed asset investments that can set up the next era of growth.
The engineering stocks listed above are some of those infrastructure stocks that may benefit from the coming construction boom. They are well positioned in booming industries; for example MDR and SHAW are well positioned in the nuclear infrastructure building industry. Some of them have tremendous backlogs, like FLR which has $30 billion worth of future projects.
What investors saw this year is the effect of credit crunch wherein banks are hard pressed to lend to good projects because their balance sheets cannot allow them to. Investors saw a lot of project cancellations early in the year, which is why the price to earnings ratios for the group in general are not bullish.
Looking forward, as banks get healthy and willing to lend and the next round of stimulus begins, investors can expect infrastructure projects to kick in as the economy looks at restarting its growth engine. By the end of this year, expect the holes to be plugged already. Expect a positive re-rating of this industry before the year ends.
Disclosure: The author does not own the stocks mentioned in this article.
