Infrastructure is key to economic growth and development. Currently, developed nations are faced with deteriorating roads, bridges and ports. Emerging economies have a big need to build and develop transportation, communications and energy / power networks in order to compete.
The price tag for all this has been estimated at over $40 trillion, according to industry sources and the U.S. Dept of Transportation.
Catalysts for infrastructure spending include:
1.) Urbanization of developing countries
2.) Population growth
3.) Privatization of infrastructure financing and management
4.) Government mandates
5.) Public opinion
Infrastructure assets provide the groundwork for economic growth and modernization. Categories of infrastructure include transportation (toll roads, shipping ports, airports); energy (pipelines, equipment, services, storage, transportation, alternative power-solar, wind, etc.); utilities (electric, gas, water) and communications (wireless, broadcast and cable, satellite systems).
Companies involved in these areas will see their stock prices rise significantly for the rest of this decade and into the next. In other words, this is an area where you want to play and invest—for a long time.
We will also see institutional money like pensions, endowments, foundations, mutual funds, sovereign investment funds, etc., continue to pour money into these kinds of stocks. Why?
Because infrastructure companies have several attractive investment characteristics:
1.) Long-lived assets and stable cash flow
2.) High barriers to entry and significant capital requirements
3.) Monopolistic structure due to government regulation and limited competition
4.) Inelastic demand — essential services that are resistant to economic downturns
These factors have the potential to generate stable growth and income for years. (Exactly what Baby Boomers in this country are needing, by the way.)
Investing in global infrastructure is a pure play on a country’s or region’s economic growth. It’s also a good way to diversify globally. In addition, according to Zephyr Associates, global infrastructure stocks are not closely correlated to global stocks or global bonds. For the past five years ended 2007, global infrastructure stocks were only 73% correlated to global stocks and 51% correlated to global bonds. So, they could be considered a sub-asset class.
Infrastructure is a major long term investment theme.
Some ideas here include [[MIC]], [[VE]], [[EXC]], [[CIG]], [[SKM]], [[CHT]]. There are many others. If you have any that come to mind or that you currently have positions in, post them here. I’d like to compile a watchlist to follow, update and share with all of you.
Disclaimer: This information is not intended to be used as the primary basis of investment decisions. Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial advisor prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. The author may have a position in one or more stocks mentioned here. Trade at your own risk.
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