By Joseph Hogue
We're less than six weeks from the November elections, and election season usually has investors picking stocks based on the prospective policies of candidates, leading to a certain amount of market volatility. Uncertainty around the global economy and monetary policy has only helped to boost volatility this election season.
But betting on stocks that win on one particular candidate is a crap shoot at best, especially in this election. Clinton and Trump differ so radically across nearly every talking point that betting on stocks favored by a particular party means the potential for massive losses if the other candidate wins.
The Real Clear Politics aggregate of national polls puts Clinton's lead at just 2.3%, close to the tightest the race has been for months. Nobody is able to call this one yet.
Unbelievable as it may seem, the candidates actually do agree on one topic. They've both made one particular sector of the economy a key position of their platform.
For that sector, the news after November could range from good to very good and a leader in the space is primed to take off.
This Sector Is About To Get A Government Jumpstart
While unprecedented monetary stimulus helped to boost stock prices over the last seven years, it didn't do much to jumpstart the U.S. economy. Retail sales and industrial production both disappointed last month, even as the Fed tried to ease markets into the next rate increase.
As the Fed closes the tap on monetary stimulus, there's just one source that can help to keep the economy growing.
Both candidates have made fiscal stimulus a key to their economic plans. Government spending has been a drag on U.S. economic growth, with Stifel Nicolaus estimating that fiscal contraction has cost GDP 0.8% on an annualized basis since 2009.
Democratic nominee Hillary Clinton has proposed a $275 billion infrastructure plan and has released a report showing that every $1 billion in infrastructure spending creates 13,000 jobs. Clinton's plan calls for $50 billion annually spent on roads and bridges over five years, in addition to $25 billion to seed an infrastructure bank that could raise another $225 billion in private investment.
Trump pointed to the nation's worsening infrastructure in his acceptance of the Republican nomination saying, "Our roads and bridges are falling apart and our airports are in third-word condition." The real estate mogul is characteristically vague on an estimate of total spending, but has said his plan would be at least double Clinton's amount.
A report by the American Society of Civil Engineers found a needed $5.2 trillion in infrastructure spending to bring the network up to an acceptable level by 2040. The ASCE has warned the government for several years of the crumbling infrastructure, and U.S. roads and bridges earned a D+ in its last assessment.
Either outcome in November would be a win for construction and engineering firms in the country. The sector is already seeing a lift from the December 2015 passage of the Fixing America's Surface Transportation Act, a five-year $305 billion spending bill for surface transportation and investment.
This Company Leads In The Most Basic Sector Inputs
Vulcan Materials (NYSE:VMC) is the country's largest supplier of construction aggregates like crushed stone, sand and gravel, with public-sector contracts accounting for half its shipments. The company has made cost-cutting and debt repayment a priority over the last several years, paying down $791 million in debt and increasing its operating margin to 18% from just 7% in 2013.
The company recently completed a four-year turnaround in 2013, reducing debt by $800 million and divesting more than $1 billion in non-core assets. On a demand recovery in late 2013, Vulcan has been able to increase gross profit per ton by 18% and reauthorized its share repurchase program last year.
Shipments last year increased to 178 million tons, still 43% below the 255 million tons the company sees in normal demand over the next several years. Reaching full industry demand could help Vulcan more than double its earnings before interest, taxes, depreciation and amortization (EBITDA) from $944 million over the last four quarters to $2 billion.
Beyond public sector demand, residential and commercial construction is still growing on low interest rates and moderate economic growth. Vulcan has reported more than 50 years' worth of aggregates in reserves, and benefits from a strong position in the South where demand is forecast to grow at a faster pace.
Analysts expect earnings of $4.04 per share over the next four quarters, an increase of 42% over trailing earnings and based on a 15% increase in sales to $4.08 billion. My target is for $140 per share on a more modest 35 times earnings and a continued repurchase program.
Risks To Consider: Infrastructure spending would still have to pass Congress and could take some time to flow through to commercial activity.
Take advantage of the momentum in infrastructure spending with shares of Vulcan Materials which should benefit over several years of increased construction aggregates demand.
This article was originally posted on StreetAuthority.com.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.