Tags: Trump | Infrastructure | Boom | Idea

The Old Idea Behind Trump's New Infrastructure Boom

The Old Idea Behind Trump's New Infrastructure Boom

 (AP/Carlos Osorio)

By    |   Thursday, 02 March 2017 11:02 PM

 It was the original great American road trip. In 1919, a 28-year old U.S. army colonel volunteered to travel with an 81-vehicle convoy from Washington D.C. to San Francisco.

“To those who have known only concrete and macadam highways of gentle grades and engineered curves, such a trip might seem humdrum,” later wrote the colonel. “In those days, we were not sure it could be accomplished at all. Nothing of the sort had ever been attempted.”

With few highways and most roads dirt rather than paved, the convoy averaged a whopping 5 miles an hour. That’s just more than half as fast as a competitive marathon runner. The first day out of Washington was slightly better—the convoy travelled 46 miles in seven hours, a little over 6 miles an hour.

The next 62 days were described by some as a grand adventure, by others as pure hell. Besides the lack of paved roads, nature proved a hazard. It took the convoy an entire day to traverse a 200-yard sand patch in Nebraska. Salt flats in Utah, where the supposedly modern Lincoln Highway had been completed in 1913, was just as bad. Sometimes, the 250 men and even the two dozen officers had to get out and push.

Still, given America’s patchwork of roads at the time, the convoy did pretty well. By the time they reached San Francisco, they were “only” six days behind schedule. They had averaged 52 miles a day.

This long, miserable trip brought America’s attention to the need for quality highways. America’s fascination with cars was still exploding. The 19th century network for cross-continental travel, the railroad, was losing out. The 20th century network was the freedom of the open road—and even that was soon displaced thanks to the advent of air travel.

But this colonel wasn’t done yet. Later, in World War II, he saw firsthand how the German war machine could quickly move troops around: the Autobahn. The multi-lane highways were wide enough for massive troop movements, and the quality of the road allowed for fast travel.

“The old convoy had started me thinking about good, two-lane highways, but Germany had made me see the wisdom of broader ribbons across the land.” It revolutionized auto travel in Germany, and could do the same thing in the United States.

So it’s no surprise that this former army colonel, Dwight Eisenhower, pushed for the creation of America’s Interstate Highways as President, finally securing passage of the law in 1956.

America’s Interstate system is many things. First and foremost, it’s a key piece of infrastructure. It’s critical for moving around people and goods, and, should the need arise, the military. It’s had secondary benefits, with the most cited being the rise of the suburbs. When you can quickly travel by car, it’s easier to live even 40-50 miles from a big city and commute, rather than live in a high-density urban environment.

So it’s no wonder that I’m excited by President Trump’s State of the Union address. He specifically cited Eisenhower’s Interstate System as our last great infrastructure project—and he’s right.

Arguably, today’s spending on upkeep for our roads, bridges, ports and the like isn’t enough. The American Society of Civil Engineers graded America a D+ on overall infrastructure spending. That includes roads and bridges, but also levees, damns, aviation, water systems, schools, waste systems, ports, and parks. They called for $3.5 trillion in spending by 2020 to address our underfunded networks.

We’re not going to hit that number, but as part of Trump’s “dream big” initiative, it looks like we will see more infrastructure spending going forward. That could bode well for infrastructure companies. One name I’ve had my eye on for a while is Chicago Bridge and Iron (CBI).

Don’t let the name fool you. This company is not headquartered in Chicago anymore. It doesn’t make just bridges. And it doesn’t produce any iron. Rather, it’s a major global player in the infrastructure game, based out of Switzerland. Chicago Bridge & Iron produces everything from oil and gas storage tanks to water storage facilities to nuclear power plants. The company works for businesses large and small, as well as governments.

And it’s one of the best bargains in the market today. Besides the potential upside from more infrastructure spending, shares are down nearly 70 percent from its 2014 peak. Why? The big fear is that many of its infrastructure projects will be impaired or written off entirely. This will reduce the company’s multi-billion dollar backlog of projects, and with it, profitability.

The other big concern over CBI right now is that the company has uneven earnings. In some quarters, it seems to blow out earnings numbers, but in others, like its most recent quarter it comes up far short. Investors don’t like these kinds of “lumpy” returns.

But that’s not unusual for an engineering company. The firm takes in some money up front and receives a portion of its revenue as parts of a project are completed. So as infrastructure projects are being built out, the company is spending cash to get the job done. CBI will make its money when projects are finished.

These fears have brought shares down just 7 times forward earnings, less than one-third the valuation of the average S&P 500 stock. Although the company recently reported losses, it still had an operating margin of 7.74 percent, meaning CBI still generated positive cash flow, it was just affected by accounting measures that led to the loss.

Even with the selloff, the company has a $614 million cash cushion and money coming in regularly as infrastructure projects move along. There’s some debt, of course, but nothing substantial coming due in the immediate future.

In short, CBI’s balance sheet is pretty good. It’s not phenomenal, but it’s smart for an engineering company to take on some debt to smooth out its cash flow needs as it undertakes projects. There’s little risk here, although you wouldn’t know it looking at the stock’s performance in the past few months.

But we’re not here to look at the past. We’re looking forward. A new wave of infrastructure spending should benefit many sectors—but beaten-down industry players seem like the best way to profit. That’s why Chicago Bridge & Iron’s future looks bright, just not from the rear-view mirror of a stuck convoy.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.

© 2021 Newsmax Finance. All rights reserved.

1Like our page
A new wave of infrastructure spending should benefit many sectors—but beaten-down industry players seem like the best way to profit. That’s why Chicago Bridge & Iron’s future looks bright, just not from the rear-view mirror of a stuck convoy.
Trump, Infrastructure, Boom, Idea
Thursday, 02 March 2017 11:02 PM
Newsmax Media, Inc.
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved