Here in America, our road system strained to keep demand, which means that lots of folks are spending dozens of hours hanging out for nothing. Who hasn’t sat in snarls of traffic for hours somewhere in America’s tangled network of roads? Who hasn’t avoided certain roads at certain times because they just know it will take twice as long to get where they’re going?

Most Americans squander countless hours of their lives idling in a car. It’s a mean reality. And it’s also a hidden tax on economic productivity. Every year, gridlock costs the U.S. economy some $78 billion. It eats away 4.2 billion hours in travel delays and sucks out 2.9 billion gallons of wasted fuel, according to the Texas Transportation Institute.

The future doesn’t look much better…unless you’re an investor. In which case, there are ways to cash in on the coming rebuilding of America’s roads.

In markets, crisis and opportunity are often dance partners, like Fred Astaire and Ginger Rogers. Where there is one, the other is often nearby. It is an idea embedded in the masthead of my investment letter, Capital & Crisis. So wherever there is the whiff of crisis, we look to see if there is an opportunity for our capital. (There isn’t always one. Fred sometimes made films without Ginger.) That’s why we’re taking a hard look at America’s crumbling infrastructure, as well as China’s and India’s inadequate infrastructure.

Somebody is going to be doing a lot of road-building during the next couple of decades. We’d like to know who. But first, a little background…

Since 1982, America has added very few new roads relative to the growth of road miles traveled. Quite simply, the supply of “road space” has not kept up with demand. The end result is predictable and unavoidable: Mounting hours of delay. The average American spends 40 hours per year in gridlock.

Currently, the amount of money we invest in our roads is not enough to offset the beating they take. The U.S. Department of Transportation (DOT) estimates that over 160,000 miles of federal highway has pavement deemed “unacceptable.” Over 153,000 bridges are structurally deficient or functionally obsolete, says the DOT. Poor infrastructure actually leads to the deaths of thousands of Americans every year. On this last point, last summer’s bridge collapse in Minnesota provided a tragic and shocking wake-up call.

Incredibly, the need for miles of highway will double over the next 30 years. If the demographers are right, the U.S. should add another 100 million people over that time frame. If we add capacity at a rate no faster than what we’ve done in the past, the average American could spend up to 160 hours each year in traffic. That’s about four workweeks! Despite the acute need for highway miles in America, the need for highways around the world is many times greater. In fact, it’s downright staggering to think about. The U.S., Europe, India and China combined planned to build nearly 70,000 miles of highways before 2020. But China and India will add 98% of that total.

Well, I can imagine a lot of things. But let’s focus on just one: Road-building construction. It should prove a steady market in the U.S. Overseas, it’s a growth industry.

Therefore, the road-building industry could still be a great place to park some cash, because of the action abroad, in China and India in particular. Overseas, the road story dovetails nicely with the commodity boom. I remember reading Jim Rogers’ comment on this fact in his book Investment Biker. He talks about coming to a wonderful paved road in Niger, when all the other roads were in shambles. The reason: There was a uranium mine nearby. “In Third-World countries — in fact, everywhere — there is no better way to develop an infrastructure. If there are profits, somebody will put down roads and telephone lines.”

In the great quest for more oil, gas, uranium and metals of all kinds, the infrastructure behind all that stuff is a powerful investment theme. Infrastructure follows beehives of economic activity.

I’m giving this sector a good scrubbing now, but I thought I’d let you know it’s one of the areas I am looking at. Most of the companies I’m looking at have significant overseas operations. These businesses are growing at healthy rates. Watch this space and I’ll report back soon.

Sincerely,

Chris Mayer
March 24, 2008

P.S.: I recently put together a report on this very issue for my Capital & Crisis readers. It’s all about India’s growing infrastructure and how they can profit from it. There is still time to get in on all of the companies listed.

As the World Builds Roads, You Can Build Your Wealth was originally featured in the Penny Sleuth.