It has been 10 months since Donald Trump assumed the office of President of the United States.
During that time, we have heard about healthcare, trade, environment and North Korea, but less has been said about niche topics, such as infrastructure. Considering Trump says that he would like to see an investment of up to $1 trillion in infrastructure, this niche industry can play a significant role in the markets.
Trump has provided several points on how he plans to increase investment in infrastructure in order to deliver new jobs, growth and upgrade the current state of U.S. infrastructure, which has been worryingly deteriorating for several years now.
The White House recently released a six-page brief on specific policies which may be part of the plan. The brief included various funding measures, support and expansion of existing plans and privatizing parts of the system to encourage private sector engagement. It also mentions the approval process, which should be streamlined in order to push for faster completion of projects – a topic the president has previously signed an executive order on.
While these steps might be helpful for investors to predict what is likely to occur, there are still many challenges that could derail the whole plan, such as the crucial question of funding. This is also connected to the partisan nature of the brief.
It might seem that infrastructure investment is a topic that can gather bipartisan support, but the reality is that each party might have a different opinion on how to fund the plan, especially in the wake of the debt ceiling debate.
All of these uncertainties make it harder for investors to navigate the environment. Topics such as North Korea offer a relatively clear impact on the markets and individual stocks, however the impact of infrastructure policy might be more difficult to predict given its complexity and the variety of market players.
Investors can easily research the potential impact of the proposed plan on companies by tapping into the vast database of content within AlphaSense, which includes global company filings, company presentations, call transcripts, industry reports, etc. Because you can search across all of these data points at once, while leveraging the power of AlphaSense AI-powered search technology, investors can feel confident that they aren’t missing any important information, while drowning out the additional noise that comes with traditional search engines.
Corporate Point of View
I started researching this topic on AlphaSense by using the obvious keywords Trump and Infrastructure. While these might seem too broad, the keyword Trump is Smart SynonymTM, which automatically expanded my search to include all variations of the keyword, such as new U.S. president, POTUS, 45th president, etc. Having those synonyms automatically included in my search results makes me feel confident I am not missing any relevant information.
As you can see in the below search trend chart, the frequency in which these keywords are discussed is slightly lower than right after the elections, but it’s still delivering a good amount of references.
In order to parse through the vast amount of information on this topic, I refined my search using AlphaSense filters to pinpoint companies and references I feel would be useful. Using the Market Caps filter, I selected companies with >$10B in market cap (mega cap), who can provide insights based on their presence in various governmental business groups close to the White House.
I downloaded a summary PDF of the following saved searches, that shows all the information from the search, including the exact reference text within the article and all highlights and annotations I made to the documents. This helps me quickly browse through a digest of my research to pinpoint interesting comments.
Using the highlight feature in AlphaSense, I highlighted the below comments from Blackrock ($BLK), a large asset management company.
In this report, Blackrock challenges Trump’s infrastructure brief, because there is not enough privatization in the sector. The report also states that state funding is an issue, mostly due to the inadequate retirement plan funding which creates a gap between capital employed and capital needed.
Comparing this report to the White House’s brief shows that the proposed plan could be heading in the right direction, because some of these challenges may have already been solved.
I then discovered a comment made by Orix ($IX) during their Q1 2017 conference call, who stated that Trump’s proposed plan provides a “positive tailwind.” Orix is a financial services company frequently involved in financing infrastructure projects and may have insights on how the project pipeline is looking.
While a concrete step by Trump’s administration would be best for the environment, market players might be more emboldened to do deals, as Orix is suggesting, and thus an uptick in number of projects could happen even without a clear policy.
During American Water Works Company’s ($AWK) Q1 2017 conference call, they mentioned the clear appeal of the policy in terms of job generation. They said that every $1 million invested in water infrastructure creates roughly 16 jobs. This might be exactly what Trump is looking for and may be another reason for completion of the infrastructure plan. American Water Works also mentioned they are ready to be an active participant in increasing the development via the private sector.
The last reference I highlighted was by Rio Tinto ($RIO), which pointed out the upside for copper, if the infrastructure plan goes through. Rio could be uniquely positioned to benefit from this, because they are one of the largest U.S. mining groups. Similar comments were also made by a number of steel companies.
This gives us a good overview of how the corporate world views Trump’s proposed infrastructure plan. Commodity players seem optimistic, as do construction companies and capital providers, although the latter does point out the inherent challenges with the policy.
The next step in researching this topic on AlphaSense is to filter by companies with <$0.5B in market cap (small cap). Small cap companies can provide insight on some of the more niche aspects of the policy. Moreover, the references may point to market players which could be impacted by the plan more so than others.
I started by looking at comments published by Paychex ($PAYX), a company who regularly gauges market opinions of small companies. In an October 4, 2017 press release, Paychex noted that almost 60% of companies believe they’re going to be impacted positively by the infrastructure plan with only 14% stating that the policy could be an issue for them.
Great Lakes Dredge & Dock Co. ($GLDD), a heavy construction company, talks about a possible impact on ports and waterways, with a specific focus on port deepening and coastal protection in their 10K for 2016. They voice an optimistic outlook, and given their niche focus, could stand to benefit greatly.
Foreign small companies also participate in the discussion as Eden Innovations ($Ede.AU), a niche cement producer, has echoed the comments of other cement companies, who are generally optimistic about the plan, because their product may be used for many projects. Specifically for Eden, it could mean a breakthrough into the U.S. market.
Finally, FreightCar America ($RAIL), a railroad company, shared an interesting comment on their Q2 2016 earnings call. They stated that even before the election, many market players were making a “long-term bet on U.S. infrastructure,” which is likely to help their market position.
This echoes the comments from Orix and the possibility that companies could already start to invest in infrastructure even before the proposed plan is in place.
So far, we have seen both President Trump and companies that may be affected by the infrastructure plan talk the talk. What remains to be seen is whether they will walk the walk.
While there are challenges ahead, most of the companies remain cautiously optimistic with as much as 60% of small businesses predicting a positive impact from the policy. The biggest gainers, if the plan goes through, may be commodity companies focused on copper and steel. Cement products and niche waterway companies may benefit as well.
While it is still a complex topic, through the use of AlphaSense I was able to reduce my initial research from hours to just minutes. By searching with just two keywords, I was able to identify players that might have large exposure to the policy and am able to stay on top of what’s happening through AlphaSense search alerts.
1. ASCE’s 2017 Infrastructure Report Card
2. Fact Sheet 2018 Budget: Infrastructure Initiative
3. Politico: Trump talks infrastructure, but $1 trillion plan is as elusive as ever
4. The Atlantic: Trump Tries to Bend Republicans on Infrastructure
5. Smart SynonymsTM, AlphaSense proprietary, AI-powered technology instantly expands your keyword searches while filtering out false positives.
Jan Svenda is an independent equity analyst focused on the U.S. OTC market. He is running a newsletter focused on creating a database of credible companies that trade in the space and exhibit an investment opportunity. This should help solve one of the main problems for OTC investors – idea generation. You can learn more about the service here.