— National Surface Transportation Infrastructure
Financing Commission, February 2008

I was walking down the street the other day, heading toward my favorite deli to get some lunch. The trip is nothing out of the ordinary — I’ve taken the same route hundreds of times. But on this particular occasion, something struck me for the first time…

As I rounded the corner near Charles Street, I nearly fell. No, my shoes weren’t untied… Instead, I had almost tumbled into an enormous crater where the sidewalk used to be.

As it turns out, construction crews were busily digging up the sidewalk on my side of the street — as far as the eye could see. They were expanding the road to increase capacity. This is nothing new. Baltimore has seen construction crews widening its streets since before cars existed.

That’s how it is everywhere, though. It doesn’t matter if you live in New York City or Colorado Springs, Colo. Everyone has dealt with long traffic jams because the guys in orange vests are taking up two out of the three lanes.

With roughly four million miles of paved roads in the U.S., plenty of maintenance is required. Most of the country’s roads are 40-plus years old. With roads that old, it takes a lot more pothole-filling crews than it did just 10 years ago…

But there is something new happening…

Unlike in years past, we are on the verge of something absolutely monumental. It’s so big this country hasn’t experienced anything like it since President Dwight Eisenhower enacted the Federal Aid Highway Act of 1956.

It Could Pay to Be Stuck in Traffic

As a nation, we are at a transportation turning point. The numbers are undeniable: Our vast network of roadways is in startling disrepair. For instance…

• Approximately 90% of urban roads will be obsolete in 13 years
• More than 27% of all bridges are already on the waiting list to be replaced — totaling about 160,570 bridges across the country
• Most importantly, the total vehicle miles traveled (VMT) far exceed our nation’s road capacity.

You may think that the government isn’t worried about the fragile state of the nation’s highways. But it is…

Government officials know all about the problem we are facing. In fact, according to the American Society of Civil Engineers (ASCE), we need $1.6 trillion worth of government money invested to bring U.S. infrastructure back to a rating of “proficient.”

Simply put, the U.S. needs to put some time and effort into its own road infrastructure. But the problem doesn’t stop at the nation’s roads. In recent history, we have seen the collapse of one of the largest bridges in the Midwest; one of the most severe steam pipe explosions in New York City’s history; and the breaking of the levies in New Orleans, leading to one of the largest natural disasters this country has ever faced.

Blindly picking a construction firm isn’t quite the way to go about investing in the next highway boom. The construction industry is completely out of favor with Wall Street — for good reason. We’ve seen the numbers…

2008 will see some of the highest home foreclosure rates this country has ever experienced. The number of houses on the market is already reaching astronomical peaks. There are very few being built these days. Investors now flee at the slightest hint of construction.

So how can we even think about a construction play now? We have to look beyond companies that have been negatively affected by the housing slump…

Concrete manufacturers claim a large chunk of their profits from residential buildings going up. Carpenters are in an even worse spot. Paving companies can’t escape it, either, because of revenue from driveways. Road builders rely on cash flow from putting in residential lanes. It doesn’t look as if there is any way to avoid the busting of the housing bubble. It’s inevitable that the declining residential markets are going to hold down profits from the coming infrastructure boom. That’s just the way it is. At least, we thought so…until now…

A $46 million company that trades only a few shares per day might seem tiny to you. But in this case, we’re talking about the biggest player in the industry. Being top dog has its perks… This company doesn’t have to pay out what the big guys do for estimations, materials, equipment or fuel.

This company bypasses all of that, yet it sees the increase in revenue just the same… And the best part is it won’t be affected from the decline in homebuilding…

Unfortunately, we aren’t ready to pull the trigger on this one. The financials are still being scoured over. If we do give this one the go, it’ll have to be limited. At $46 million, this company is far too small for Penny Sleuth. So, if things turn out the way I think they will, we’ll recommend a buy in a few weeks to our Penny Stock Fortunes readers.

To get in on it, along with all of our other picks, you need to sign up here…

Sincerely,

Jim Nelson
May 16, 2008

P.S.: As always, send any questions or concerns to us at jim@pennysleuth.com.

The Construction Play That Will Actually Soar was originally featured in the Penny Sleuth.