Regardless if you are a democrat or republican, support or disagree with the Stimulus Plan all together this bill is going to pass. The only question is how much will the final Stimulus Plan actually be and when will it be put into action were funds are actually being spent by the federal government. We know that the final Stimulus Plan will be worth about
$800B give or take
$50B, and my guess is the federal government will start to spend the money by the end of the first quarter or early in the second quarter. And the general plan as to how the money will be spent is all so laid out at this point. And one of the largest areas of spending is going to be on infrastructure, so that sets-up as an area of investment interest.
The Senate bill would spend
$142 billion (18% of the total stimulus bill) on infrastructure, a broad category which includes an array of projects from renovating and building public schools, to restoration of facilities at parks, to building new highways. A substantial amount of money would be devoted to creating jobs, many of which would involve repairing the nation's infrastructure, including roads and bridges. Money also would be invested in alternative energy programs. According to the projection the plan will create the most jobs in the construction field about 678,000 jobs because of the heavy spending on infrastructure.
Due to the Stimulus’s Plan to spend 18% of the funds on infrastructure I feel that this presents an investment opportunity in the construction machinery sub-sector and general building materials sub-sector. In the construction machinery area the big names are Caterpillar (CAT) and CNH Global NV (CNH). The US based CAT is worth a look as a Stimulus bill long side play. CAT is currently trading at 31.13 which is 64% off its 52 week high of 85.96. As the money is spent CAT should be a direct beneficiary.
When this market turns and has a tradable move to the upside between now and the 3rd quarter I can see CAT trading back up the November 2008 high of 40.40, or in the range of 39-41. Since the 52 week closing low is very close at 29.99 so I would use a protective stop of a close below 29.50.
Some names in the general building materials sub sector are Vulcan Materials (VMC) and Astec Industries (ASTE). Vulcan Materials Company, through its subsidiaries, produces construction aggregates and other construction materials in the United States and Mexico. The Asphalt mix and Concrete segment produces and sells asphalt mix and ready-mixed concrete. The demand for asphalt and concrete will be increased due to the Stimulus plan. VMC is trading at 44.94 which is 47% of its 52 week high of 84.73.
The November high was 61.54, I do not think we will see a strong enough market turn to get back to that level. I do think a reasonable range that VMC will trade back up to during a tradable move is 53-57. I would use a close below the current 52 week closing low (about 40.50) as a protective stop. Good Luck
