Investing in Infrastructure
4 Ways to Profit From the Infrastructure Boom
By Jim Nelson , Penny Sleuth

Poor infrastructure is a theme that we’ve been relentlessly analyzing here at Penny Sleuth. Highways and bridges are collapsing, steam pipes are bursting, and blackouts are consuming entire cities. However, not everything is so gloom and doom. There is a boatload of money to be made by investing in infrastructure.

It’s not too hard to see why, when you consider events following the I-35W bridge collapse in Minneapolis. The government has plans to build a new bridge, with costs for rebuilding projected in the $250-million range. But first, lets look at how it got to be bad enough to collapse.

For decades, federal inspectors knew that a flaw in the structure of the eight-lane bridge could easily take down the entire bridge. But year after year, the government let the bridge pass inspection. And year after year, the government refuses to invest in the proper infrastructure…

According to the U.S. Department of Transportation, 756 steel deck truss bridges span America’s waterways, just like the one in Minnesota.

Built in the 1950s and 1960s… approximately 11% of these steel bridges have weaknesses much like the one that caused the I-35W bridge’s collapse.

But it gets even scarier, when you realize America’s infrastructure crisis involves roads, schools, dams, power grids, and water pipes too – so far, with almost no government investment into the infrastructure.

The American Society of Civil Engineers (ASCE) conducts a study every two years grading (A-F) 15 different aspects of the U.S. infrastructure. The most recent one in 2005 gave the overall American infrastructure a “D”.

Finding the Right Investments in Infrastructure
For a government like the U.S.’ to spend a half a trillion dollars on an unpopular war and another $600 per second on the “War on Drugs”, investing a little in infrastructure should not be a big deal. But so far, it has been. But not for long…

The ASCE report also evaluated how much it would cost to bring the overall ratings up to an adequate level. It concluded that it will cost $1.6 trillion over the next five years… $1.6 TRILLION!

So, over the past year, we’ve been bringing readers various ways to grab their share of that money. So far, we described four ways to invest in infrastructure:

In February, Chris Mayer wrote about a unique water play, Pioneer Companies, Inc. (PONR: NASDAQ). This company is the sixth-largest producer of chlor-alkali products in the U.S. Chlor-alkali is important to the process of water treatment. And since the company is the only one located in Southwest U.S. and the water infrastructure is so bad there, Chris expected big things from the company.Well, sure enough, he was right. At the end of the summer, the mega-chlor-alkali producer, Olin Corporation (OLN: NYSE) bought up Pioneer. This buyout gave Pioneer investors a windfall of profits to the sum of $35 per share.

In late June there was another possible infrastructure investment, Insteel Industries, Inc. (IIIN: NASDAQ). Insteel produces a special type of support for highway barriers and bridges called engineered structural mesh. Insteel was in position to take advantage of the inevitable bridge-building boom that will sweep the U.S. in the months and years to come. And, it still is… Just wait for this player to pick up some huge deals in the near future.

Also on the highway-building theme, we featured Sterling Construction Company, Inc. (STRL: NASDAQ), in late September. Sterling has been smart enough to keep its nose out of residential construction over the past few years during the housing boom. This put the company in position to do what it does best: Build roads, highways, bridges, water and wastewater treatment systems and pipe installations.

With these focuses, Sterling will soon be looked at as a premier infrastructure provider to the state of Texas. The company has already been building its backlog. It hasn’t gone unnoticed. Since it joined our watch list, investors have made a quick 7.5% gain.

Finally, we featured a Canadian infrastructure play, Aecon Group, Inc. (ARE: TSE). Aecon has been a leader in Canada, especially in the Toronto area, in various businesses, which include infrastructure, concessions, buildings and industrial. The infrastructure segment of Aecon’s business includes road, highway and airport runway construction and paving; building dams, tunnels and transit systems; as well as utility construction like water and sewer systems, telecommunication networks and even mainline gas projects.

While Aecon is still relatively small, its core infrastructure business has helped it close to triple over the past year, going from $6.22 last November to almost $18 per share right now.

Whatever happens with these four companies, one thing is for sure: If you invest in infrastructure, get ready to see some serious profits. As more ideas pop up, you can be among the first to find out, if you sign up for our Free E-Letter.

Sincerely,
The Penny Sleuth Editorial Team

Additional Information about Investing in Infrastructure:

Infrastructure – Wikipedia

How to Benefit From Being in Construction -Jim Nelson, Penny Sleuth

Sizing Up Infrastructure Stocks -SeekingAlpha.com

U.S. Department of Transportation

Infrastructure Report Card 2005 -American Society of Civil Engineers

Canadian Infrastructure -Jim Nelson, Penny Sleuth