With the collapse of the real estate and construction market still grinding in the back of our minds, the question as to whether it is time to invest is difficult to answer. We have seen significant banking and lending institutions brought to their knees and observed trillions of dollars exit the markets within a relatively short amount of time. But as the old adage goes, when others are getting out, it’s time to jump in.
Now is an incredible time to start investing in construction companies for several reasons. One of the main reasons is the fact that the newly 100 day old President, Mr. Obama, has strongly indicated the influence government will have over the mortgage and lending markets and the infusion of funds that he will provide for the improvements of the nation’s infrastructure. The initial inoculation of funding provided by the stimulus package will more than likely be granted to those governmental institutions that have jurisdiction over the main infrastructure. Such governmental entities will include Department of Transportation and Department of Flood Control.
The initial funds will incorporate the construction of roads, utilities and flood control structures, which materials will include: asphalt, hard plastics, Portland cement, and steel metals, to name a few. There are several companies that will feel the rebound from such an influx of cash which shall include AK Steel Holdings (AKS) which is a company that produces steel products and tubular products. Oil for the asphalt and the construction equipment will be positively affected, including Oil Service Holders (OIH) and Exxon Mobile (XOM). Finally, as we have mentioned the construction equipment, Caterpillar Inc. (CAT) will see positive results when these construction projects begin, as such the market has a tendency to build the value into the price prior to the execution.
As the stimulus funds have been dispersed and the government entities have begun their much needed construction projects, these entities will have funds freed up that were previously allocated to the projects now funded by the stimulus package. Therefore they will begin the design work for the projects to follow and the civil engineering firms will reap the benefits of this. One particular engineering company that has managed to maintain control of its stock price is Jacob Engineering (JEC) who has a major focus on the governmental agencies.
The final point that I would look to portray is that in the current market, we have seen lows that we have not seen since 1996. Over the last year, the market has dropped about 50%, the DOW barely held 7000 points and the S&P nudged under 700. What a better opportunity is there than to buy at prices at half off?
There is still a lot of fear to enter the market as volatile as it has been. A new, cautiously optimistic attitude about the market is a good idea. There are great opportunities in the construction industry, but please research and do your own homework. Now is the time for understanding and courage, not a time for ignorance and fear.