Infrastructure Stocks Are Worth A Closer Look

By Investopedia Staff | April 19, 2011 AAA

As many nations sought refuge from the global economic crisis, infrastructure became an even more important theme as government's pledged billions of dollars towards construction in order to jumpstart stagnant economies. This new focus towards improving and building vital infrastructure has helped bring investment opportunities in this sector to the forefront. Funds like the SPDR FTSE/Macquarie Global Infrastructure 100 (NYSE:GII) have become popular with investors looking for access to the theme. However, despite the nearly $3 trillion already spent on infrastructure since the beginning of financial crisis, analysts calculate there is still more work to be done.

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More Work Needed
CIBC World Markets estimates total infrastructure spending over the next 20 years will need to reach nearly $35 trillion. In the United States alone, the American Society of Civil Engineers estimates that the nation will require $2.2 trillion in spending over the next five years to repair its dilapidated infrastructure. By 2030, electric utility investment needs could reach $1.5 trillion, and nearly $277 billion dollars will need to be spent to support our aging water distribution system.

Similar dollar amounts will need to be spent by other developed nations. The European Union must spend $252 billion; Japan, nearly $129 billion. In the United Kingdom, 30% of distributed water is lost through leakage and decaying pipes. These are just a few of the examples of serious dollar amounts needed to improve the developed world's degrading infrastructure.

In the emerging world, governments are spending comparable amounts of money on the building blocks of economic growth. Annual spending on logistic infrastructure, such as roads, ports and railways, has tripled in India since 2003 to nearly $30 billion. In 2009, China spent nearly $103 billion on railway construction, an increase of 69% compared with the previous year. The nation has plans to add 42,000 km of new rail tracks by 2020.

Similar developments are going on in Africa, where nations like Mozambique, Rwanda, Tanzania and Uganda all face critical infrastructure gaps, especially in the energy and transportation sectors. A new $32 billion plan was recently announced with the hopes of providing the integration of Africa's road infrastructure and linking its nine major trading corridors.

Doing the Heavy Lifting
Funds like the Cohen & Steers Infrastructure Fund (NYSE:UTF) generally hold the owners and operators of infrastructure assets. The global build-out lends itself to companies that provide the engineering and construction services to various governments and organizations. Investors wanting to participate in the build-out do have some choices.

For broad exposure to the build-out, both the PowerShares Emerging Markets Infrastructure (NYSE:PXR) and the First Trust ISE Global Engineering & Const Index (NYSE:FLM) track many companies involved in the heavy lifting. The PowerShares fund also includes a heavy dose of the materials companies that provide the steel and aggregate needed for construction. Both funds have performed pretty well in the recovery, with the PXR up 11% in the last six months.

Great Lakes Dredge & Dock Corporation (Nasdaq:GLDD) may be one of the best stealth infrastructure plays. The company maintains the shape of docks and ports as well as participates in their construction, both domestically and internationally. The company won more than 40% of the total bids for dredging in 2009 and its backlog currently sits at $363 million. Great Lakes will stand to profit as countries continue to improve their port infrastructure.

With a host of new nuclear of reactors under construction around world and host of others in the planning stages, both Fluor Corporation (NYSE:FLR) and Shaw Group (Nasdaq:SHAW) will benefit as the leading contractors in the space. India plans on adding 20 GW worth of nuclear power by 2022.

The Bottom Line
With the world beginning to take a serious look at the state of its infrastructure, many governments are plowing large dollar amounts in upgrading and improving these vital pieces of economic growth. Companies like URS (NYSE:URS) that do the construction benefit from the build-out. Investors with long enough timelines may want to consider adding some capital to the sector. (To learn more, see Build Your Portfolio With Infrastructure Investments.)

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