According to the American Society of Civil Engineers, the United States must spend an additional $ 4.6 billion over the next decade to modernize its infrastructure. At the same time, the world's urban population will grow by about 1 billion people over the next decade, which will require far more than enough money to get enough water and electricity and to build sufficient road and telecommunications infrastructure to meet their needs. Needs.
Extrapolate all the modernization and expansion needed globally over the next few decades, and the G20 estimates that it will take US $ 94 trillion spending to meet the needs of humanity by 2040. In a nutshell, it is a huge global need and one of the few issues for which there is broad bipartisan support for increased spending.
Gather them together, making it a great opportunity for investors to overcome the cyclical nature of infrastructure spending and patient enough to reap the benefits that the best companies can generate.
Here are three countries that are well-positioned to win the infrastructure marathon and worth buying now: the steelmaking giant Nucor Corporation (NYSE: NUE), owner and developer of global infrastructure Brookfield Infrastructure Partners L.P. (NYSE: BIP) and High Growth Engineering Company NV5 Global (NASDAQ: NVEE).
Infrastructure means steel and the best steelmaker sells at low valuations of the decade
No other company produces more steel and steel profits in North America than Nucor. Whether it is reinforcing bars for concrete construction, steel pipes intended for uses such as transportation and energy production, or beams for the Building bridges and skyscrapers, Nucor is a leader in steel for infrastructure.
More importantly for investors, Nucor offers the best combination of balance sheet strength, cost-effective and flexible operations, and effective sector management. Demand for steel can fluctuate strongly from one quarter to the next and no other steelmaker has been as able to manage its expenses throughout the demand cycle as Nucor. That's why Nucor has generated outstanding returns over the past decades:
However, a 26% sale since the peak reached about a year ago may have created the best buying opportunity for a decade. At recent prices, Nucor shares are trading 7.9 times net profits:
As the chart shows, the last time Nucor was cheaper than during the 2009 financial crisis, the worst global recession of the past 80 years. In addition, the sale reduced its dividend yield to 3%, a solid gain that is expected to increase; Nucor has increased its regular dividend every year for more than half a century.
Add all this, and Nucor is worth buying now and keeping for many years.
Brookfield owns the infrastructure. You are paid.
Like Nucor, Brookfield Infrastructure Partners is led by a management team with impeccable experience in asset and capital management and allocation to generate superior returns over time. those of the market. Also like Nucor, the price of Brookfield Infrastructure has dropped more than 20% from the top.
However, while Nucor's shares feared a drop in steel demand and oversupply, the price of Brookfield Infrastructure declined as asset sales took a hit – albeit a temporary one – in its cash flow, while management takes its time to redeploy this capital.
The result? Mr. Market's short-term focus has created an excellent buying opportunity for long-term investors. After agreeing to sell its Chilean electricity transmission business for $ 1.3 billion by the end of 2017, management has identified and secured higher-yielding investment opportunities of $ 1.8 billion. dollars. As these transactions are finalized, Brookfield Infrastructure's cash flows will again be significantly accelerated.
Investors who are buying now can position their portfolios for significant long-term gains. Management follows the same strategy of selling low yielding assets at a premium multiple and then opportunistically redeploying them into higher growth and yield assets. Brookfield Infrastructure's distribution has increased by 700% and investors have generated total returns of 389% since its IPO.
These excellent returns are mainly the result of the same approach to capital deployment that has led the market to sell over the past year, creating an excellent opportunity for savvy investors. Negotiating for less than 10 times the funds from operations planned for 2019, Brookfield Infrastructure is a theft.
A small beginner with great prospects
Part of the often overlooked infrastructure is engineering and project management that go into the development and construction of structures. It often takes years and a lot of money to come up with an innovative project, and it takes a lot of experts in many disciplines to see a project from initial proposal to implementation.
In addition, with more than 100,000 separate companies operating in the United States alone, it is even more difficult to manage large infrastructure projects as several companies in different specialties are working on a single project.
Dickerson Wright, founder, CEO and sole shareholder of NV5 Global, clearly recognizes this opportunity: to consolidate many of these unidisciplinary small businesses under one umbrella. By combining multiple disciplines within a single entity, NV5 is able to offer more services than an infrastructure project can require while delivering them at lower cost and higher profit.
This is certainly up to now. In around six years, NV5's sales increased by 536%, while earnings increased by 743% per share. And it's not just acquisitions that drive growth. In the last quarter, organic sales increased by 10%, largely thanks to NV5's ability to cross-sell the range of services it offers, creating more value for its large-to-large customers. projects.
The title of NV5 has also taken a recent pace, down 35% from its peak. This means that you can buy a company with growing profits at a solid double-digit rate, about 23 times the expected earnings for the 2018 fiscal year. Considering that its annual revenues have finally reached $ 400 million in 2018 , it's a small price to pay for its growth rate and prospects.