By Nick Rokke, analyst, The Palm Beach Daily
On the morning of December 18, 2017, Amtrak Train 501 left Seattle for Portland.
The train was traveling on newly refurbished tracks that are part of a new route designed to offer speedier service.
The train was going 80 mph in a 30-mph zone when it derailed and careened off a bridge in Tacoma. The accident killed three people and injured more than 100.
President Trump quickly tweeted his condolences. And, like any good politician, he didn’t let the crisis go to waste…
The National Transportation Safety Board is still investigating the cause of the train accident. So, we don’t know whether the blame lies with crumbling infrastructure, human error, mechanical error, or something else altogether.
But President Trump did have a point… The U.S. does need infrastructure improvements—badly.
Here at the Daily, we don’t talk politics. We’ll let the mainstream media debate endlessly about Trump’s mental health or re-election plans.
That won’t help you make any money… But knowing how to profit from what’s happening in Washington will.
So far, we’ve got a good track record of predicting how to make money off Trump’s policies:
In February 2017, we told you Trump planned to ease regulations on financial institutions. Since then, the SPDR Financial Select Sector ETF is up 19%.
In March 2017, we told you biotech would do well if Trumpcare failed. It did. The S&P Biotechnology Select Index rose 26%.
In June 2017, we told you U.S. steel companies would thrive under Trump’s “America First” platform. Since then, the NYSE Arca Steel Index is up 36%.
In December, the Trump administration announced that it would reveal a 70-page, $1 trillion infrastructure spending proposal sometime early this year. Today, I’ll show you how to play this massive spending spree.
A Failing Grade
In August 2007, the I-35W bridge over the Mississippi River in Minneapolis collapsed, killing 13 people and injuring 145 more.
The I-35W bridge in Minneapolis collapsed in August 2007
Other U.S. bridges are in danger, too. According to the American Society of Engineers (ASCE), one in nine U.S. bridges are structurally deficient.
Every four years, the society issues a report on the condition of U.S. infrastructure. The report assigns a letter grade based on the physical condition and improvements needed.
In 2017, the ASCE gave U.S. infrastructure a D+. It also said the U.S. government needs to spend over $2 trillion over the next decade just to fix our aging roads and bridges.
It’s just not bridges, either… We need trillions more to update other infrastructure, like electrical grids, dams, airports, and railroads.
Look, the media will speculate endlessly about where infrastructure spending will go. Will it be roads, bridges, ports, a border wall, or something else?
We don’t know.
What we do know is that no matter which projects get passed, there will be one major winner…
I’m talking about steel.
Steel—a lot of steel—goes into every major infrastructure project… even roads. (If you want to know how steel is used in roads, check out this document from the Michigan Department of Transportation.)
It’s impossible to know how much steel will be used in any infrastructure plan. But let’s say only 1% of Trump’s requested $1 trillion infrastructure spending goes to steel (which is a conservative estimate). That’s $10 billion of new demand.
That would give U.S. steel companies an additional 20% in revenue.
The government has “buy American” rules that mandate steel used in American road and bridge projects be 100% U.S.-sourced. So, this new steel demand must be met by U.S. steel companies.
The new demand would be on top of already strong steel demand. The World Steel Association estimates U.S. steel demand rose 5.9% last year.
How to Invest
There is no one-click way to get exposure to this trend. You could buy a steel ETF, but then you’d be getting a lot of foreign exposure. You’ll still do OK, but you’d get better returns buying U.S. producers like Nucor, AK Steel, U.S. Steel, and Steel Dynamics.
As always, do your research before investing in any company.
Look for Washington to provide a boost for steel. And hang on for the ride.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
P.S. In tomorrow’s Daily, I’ll show you another industry that will benefit from infrastructure spending. Stay tuned…
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