Weather, rust and sheer age attack the nation's bridges and tunnels. Many of them are crumbling.
The Minneapolis bridge collapse in August 2007, which killed 13 people and hurt 145 more, was spectacular evidence of the problem. But it's not an isolated example.
About 46,000 U.S. bridges, including the Brooklyn Bridge and the Theodore Roosevelt Bridge in Washington D.C., are structurally deficient, according to the American Road & Transportation Builders Association.
As Joe Biden prepares to assume the presidency, Republicans and Democrats don't agree on much. But fixing the bridges and tunnels may be one thing on which bipartisan cooperation can happen.
This seems like a good time, therefore, to look at infrastructure stocks, especially engineering and construction companies. Here are five I recommend.
Fluor
Fluor Corp. (FLR, Financial), based in Irving, Texas, is one of the largest engineering and construction companies in the world, with about 50,00 employees in more than 100 countries. It was a major contractor on the Gordie Howe International Bridge, which connects Detroit with Windsor, Ontario.
A dozen years ago, Fluor shares looked like they might break $100. Today, they trade for less than $18. The company won many projects by bidding low, only to encounter one cost overrun after another.
Fluor also concentrated on projects for the energy industry, which is in the seventh year of a slump. To make matters even worse, the company revealed in October that the Securities and Exchange Commission is investigating its accounting.
The woes are real, but I think bankruptcy is unlikely. Fluor has $1.7 billion in debt, but it also has nearly $2 billion in cash.
The company will lose money this year for the second year in a row, but before 2019 it showed a profit 23 years in a row. And the stock is cheap by some measures. Fluor had sales of more than $14 billion last year, yet its market value is a mere $2.5 billion.
Jacobs Engineering
Based in Dallas, Jacobs Engineering Group Inc. (J, Financial) has extensive experience with highways, bridges, airports and rail transportation. It helped build seven miles of railroad tunnels connecting the Long Island Railroad to Grand Central Station in New York.
Jacobs has a better balance sheet than Fluor, with debt only 44% of stockholders' equity (versus 156% at Fluor).
The years since the Great Recession of 2007 to 2009 have been tough for engineering and construction companies. Jacobs hasn't boomed, but it has managed to stay profitable for every one of the past 30 years (as far back as I'm able to search).
The stock is a little expensive for a bargain-hunter like me, at 28 times recent earnings (18 times projected 2021 earnings). But if Congress gets serious about infrastructure, I think this is a good play.
United Rentals
United Rentals Inc. (URI, Financial), based in Stamford, Connecticut, describes itself as the world's largest equipment rental company. Much of what it rents is construction equipment. If you need an aerial lift or a portable generator for a couple of weeks, you can find it here.
At less than 14 times estimated 2021 earnings (18 times trailing earnings), United Rentals is not too extravagantly priced.
The company carries more debt than I like (254% of equity). After losing money during the Great Recession, it has posted profits in each of the past 10 years. And profits lately have been very strong, with a 24% return on equity in the past four quarters.
Martin Marietta Materials
Based in Raleigh, North Carolina, Martin Marietta Materials Inc. (MLM, Financial) is a major supplier of aggregates for highway construction. It also produces asphalt, concrete and chemicals. It has been profitable 27 years in a row, ever since it was spun off by Martin Marietta Corp. (now part of Lockheed Martin (LMT, Financial)).
At 25 times earnings, the stock isn't cheap. But earnings have been accelerating lately, and might jump more if some big infrastructure projects come the company's way.
Nucor
Any big push on bridges and tunnels would involve a lot of steel. The relatively safe play here is Nucor Corp. (NUE, Financial). Based in Charlotte, North Carolina, it is the largest steelmaker in the U.S. by volume. Much of the steel it makes is recycled from scrap. Nucor has been profitable in 14 of the past 15 years.
Riskier, but perhaps interesting as a speculation is U.S. Steel Corp. (X, Financial). It has far more debt than Nucor, and a spottier earnings history (profits in only seven of the past 15 years). But it's cheap, selling for less than book value (corporate net worth per share) and 0.26 times revenue.
John Dorfman is chairman of Dorfman Value Investments in Boston. His firm of clients may own or trade securities discussed in this column. He can be reached at [email protected].
