Market Health

Two Must-Know Names for the Infrastructure Boom

On the morning of January 24, 1848, James Marshall spied some “sparkling pebbles” in the tailrace of his sawmill.

He quickly realized that it was gold!

Marshall and his partner, John Sutter, tried to keep their discovery a secret. But businessman and journalist Samuel Brannan heard the tale from one of their workers and broke the story in his newspaper.

In that moment, the gold rush was born.

In 1848, California’s gold output was worth $5 million. This rocketed to $40 million in 1849 when 100,000 prospectors plowed into California and started digging for riches. And it rose to $55 million by 1851.

Unfortunately, most fortune seekers barely scraped by.

Even Marshall and Sutter’s sawmill closed as all of their workers left to search for gold. Brannan’s newspaper went under as the town’s population dwindled to 200.

But despite that setback, Brannan emerged as the gold rush’s first millionaire.

And he accomplished that by snatching up every shovel, pick and pan that he could find in California. His store at Sutter’s Fort started earning $150,000 per month – which would be more than $4 million today.

He became the wealthiest man in San Francisco.

Brannan – at least for a short while – was the living embodiment of this famous Mark Twain quote: “During the gold rush, it’s a good time to be in the pick and shovel business.” (However, Brannan died penniless after plowing his millions into California real estate.)

But this story encapsulates one of our favorite approaches to profiting on “gold rushes.” And there’s another one looming…

The $5.9 Trillion “Gold Rush”

We’ve always been fans of pick-and-shovel plays here.

We’ve covered these opportunities frequently with cannabis, clean energy, electric vehicles and traditional commodities.

And over the years, Oxford Club Members have scored big gains on Baker Hughes (NYSE: BKR), FMC Corp. (NYSE: FMC), Kadant (NYSE: KAI), Komatsu (OTC: KMTUY), Raven Industries (Nasdaq: RAVN) and others.

But there’s another gold rush we’re looking to tap into now. And it’s an important, much-needed one.

Though, once again, the biggest companies poised to benefit are pick-and-shovel plays.

The U.S. economy literally runs on a network of roadways, train tracks, ports and electrical grids. Unfortunately, this infrastructure is crumbling and overstretched.

Civil engineers have raised safety concerns. And they estimate that the U.S. must pour $5.9 trillion into infrastructure spending over the next decade.

In fact, the situation is so dire that the American Society of Civil Engineers recommends raising infrastructure spending to 3.5% of U.S. GDP by 2025.

That’s the kind of spending that can really drive the construction sector higher.

Two Must-Know Names

Now, when most investors think of pick-and-shovel infrastructure plays, they think of the tried-and-true companies, like Caterpillar (NYSE: CAT), Deere & Co. (NYSE: DE) and Jacobs Engineering Group (NYSE: J).

But I believe there are two more names every investor should consider.

The first is Fastenal (Nasdaq: FAST).

The company is one of the largest distributors of construction and industrial products. It sells duct tape, nuts, bolts, screws and studs that are necessary for any building project to be held together.

But it also sells safety equipment – which proved to be vital in 2020.

Most importantly, 15% of its customers are government, education and transportation entities. Plus, more than 23% of its customers are heavy equipment manufacturers.

Fastenal reported first quarter revenue of $1.41 billion with earnings of $0.37 per share.

Fasteners – the important pieces holding buildings and bridges together – accounted for 32.5% of sales in the quarter. Safety product sales – due to the increased demand for personal protective equipment – grew to 21.5% of revenue.

For 2021, Wall Street believes the company will see $5.87 billion in revenue with earnings of $1.55 per share.

The second name to put on your watchlist is Cemex (NYSE: CX).

This company is one of the world’s largest producers of concrete. And the U.S. is its most important market, accounting for roughly 30% of revenue.

In the first quarter, net sales grew to $3.41 billion as profits increased fifteenfold! And for the year, the company is projected to see revenue grow to $14.36 billion as earnings improve dramatically.

Cemex and Fastenal produce what literally holds every infrastructure project together. And we’re banking on brighter days ahead for the construction industry.

The U.S. House of Representatives kicked off July by passing a $715 billion surface transportation and water infrastructure bill. This is the first step toward moving forward with a sweeping infrastructure package by September.

There’s also a $1.2 trillion bipartisan infrastructure framework being hammered out in the Senate.

For many years, presidents have promised to increase infrastructure spending. But despite plenty of debate, we’ve rarely seen anything actually get passed.

This time could be different though. Some progress is being made. And this momentum shows it’s – once again – a good time to be in the pick-and-shovel business.

Here’s to high returns,

Matthew

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