Stimulus may show stocks to build on
By GENE WALDEN
January 10, 2009
President-elect Barack Obama is lifting the veil on his economic stimulus plan, which will cost the country in the range of $1 trillion or more. Details are yet to be worked out, but it's expected to include tax breaks for businesses willing to hire new employees and spend on capital improvements. It also reportedly will allocate a tax break or refund for individual taxpayers of about $500.
In other words, it's very similar to the stimulus package President Bush pushed through last year that failed to jump-start the economy. Obama's plan, however, is much bigger and broader, although analysts still concede that the plan may have only a small effect on our $15 trillion economy. But with manufacturers, retailers, banks and the housing industry becoming increasingly desperate, if Obama's plan can just stem the tide, it will be a welcome relief. It could be years, however, before the economy is rolling along at full force with strong sales and full employment.
But Obama's plan differs from the Bush stimulus package in a significant way because it allocates several hundred billion dollars to rebuild the nation's infrastructure. No question, our infrastructure needs a face-lift. Bridges, highways, levees, schools and other government facilities are desperately in need of improvement.
If you're looking for stocks that might benefit from the infrastructure injection, there are a number of local and regional companies to consider. The caution here is that government tends to move slowly, so it could be a year or two from when the money is allocated until construction begins.
One regional firm that may be well positioned to benefit from the rebuilding of the infrastructure is Manitowoc Co. (MTW), the world's leading manufacturer of cranes and related equipment. With headquarters in Manitowoc, Wis., the company has operations in 27 countries. In addition to its lifting equipment, Manitowoc is also a leading manufacturer of commercial food-service equipment.
Last week the company projected earnings for 2009 of $1.35 to $1.60 per share. That's down significantly from about $3.20 per share it's expected to report for 2008 and the $2.64 earnings per share of 2007.
The stock this year has followed the general trend of the construction industry by dropping through the floor. It closed Friday at $8.12 a share, down from a 52-week high of $45.47, but up significantly from its low of $4.56. It has a price-earnings ratio (PE) of 3.4 and a dividend yield of about 0.8 percent.
Among others that could benefit from a national infrastructure upgrade:
Graco (GGG). This Minneapolis-based firm makes a number of products used in the construction and renovation industry. It provides equipment designed to apply paint, coatings, chemicals, sealants, adhesives and lubricants for a variety of applications. The stock closed Friday at $24.22 a share, down from its 52-week high of $42.20. The stock has a PE of about 10 and pays a 2.4 percent dividend yield.
Tennant (TNC). Founded in 1870, this Golden Valley-based operation produces commercial cleaning equipment, specialty surface coatings, preservation products, parts and other products used to clean and coat floors in factories, office buildings parking lots, streets, schools, government buildings, warehouses and airports. Shares closed Friday at $15.09, down from its 52-week high of $43.94. It has a PE of about 7 and offers a dividend yield of about 3.2 percent.
Fastenal (FAST). Based in Winona, Minn., Fastenal sells industrial and construction supplies, such as bolts, nuts, screws and studs, as well as paints, batteries, sealants, cutting tools, abrasives, hydraulics, plumbing equipment, electrical and welding supplies, and related accessories. It closed Friday at $33.03 a share, down from its 52-week high of $56.03. It has a PE of about 18 and pays a dividend of about 1.5 percent.
Valspar (VAL). This Minneapolis-based company is one of the nation's largest producers of paints and coatings, which it distributes throughout the world. Friday's close was $18.22 a share, down from its 52-week high of $24.95. Valspar's stock has a PE of about 13 and offers a dividend yield of about 3.3 percent.
Most construction-related stocks have been severely hammered in the past 12 months, but once Obama's stimulus plan takes effect, the construction sector could be one of the industries that benefits the most.
Gene Walden lives in the Twin Cities and is the author of more than 20 books about business and investing. Send questions or comments to: gwalden100@comcast.net.
