Infrastructure

As the economy rides out the new reality of the Coronavirus, spending on infrastructure could be an answer to the United States’ economic woes, according to a nearly $1 trillion government proposal currently in the works.

The U.S. infrastructure funding law is up for renewal on September 30th. In its absence, investors are expecting something big to happen. The news of the non-finalized proposal already sent stocks soaring. Last week, upon the announcement, Fluor Corp. surged 11% before regular U.S. trading began, while Vulcan Materials Co., another heavy infrastructure company, similarly climbed by 8.3%.

Regardless of the fate of this specific proposal, infrastructure as an agenda item isn’t going anywhere. According to a statement from White House spokesman Judd Deere, “Since he took office, President Trump has been serious about a bipartisan infrastructure package that rebuilds our crumbling roads and bridges, invests in future industries, and promotes permitting efficiency.”

In fact, infrastructure has been on the minds of lawmakers for some time now. In January, the Democratic-led house laid out a $760 billion, five-year infrastructure package. That follows another package set forth by President Trump two years prior that totaled $1.5 trillion. While neither of these proposals were the final fix, they underscore the need for improved infrastructure throughout the United States, and tangentially, a new era of government investment in the U.S.

It’s a sure bet that with the pending renewal date, the next generation of government-led investment is imminent in one form or another. Here’s what all investors need to know. 

What is Infrastructure?

Traditional infrastructure includes roads and bridges, yes. And in the U.S., ours need a lot of work. According to the American Society of Civil Engineers (ASCE), the U.S. needs to spend some $4.5 trillion by 2025 to fix the country’s roads, bridges, dams, and other infrastructure items that Americans rely on every day.

Per the same report, the 2017 Infrastructure Report Card (which is published by the ASCE every four years) many of the one million pipes that carry American drinking water have been in use for almost 100 years. Aging pipes are a serious issue when you consider that there are an estimated 240,000 water main breaks per year, not to mention issues with contamination. 

And, more than 200,000 of the 614,387 bridges in the U.S. are more than 50 years old. It is estimated that these will cost as much as $123 billion to fix.

This physical infrastructure needs to be fixed.  

But, amid today’s technological renaissance, our society is largely reliant on wireless technologies and networks more than ever, and that counts as infrastructure too. Accordingly, there is also a need to innovate and improve in the wireless and 5G network arenas, as well as implement better broadband access for rural areas of the country.

In other words, infrastructure today refers to both Route 66, as well as the “information superhighway.”

Why Invest in Infrastructure?

Roads and bridges are in many ways at the core of economic growth. According to the ASCE, “infrastructure brings you breakfast.” Its website follows a bagel from wheat fields in the Midwest to a bakery in the South, demonstrating how the price of the bagel is impacted by its journey along America’s infrastructure.

Traditional infrastructure provides essential services to society and benefits. They are “essential to the sustainability and growth of an economy,” according to the Royal Bank of Canada’s Global Asset Management.

Even more, because there is often little competition in regulated industries or after a government contract is established, traditional infrastructure investments tend to have sustainable cash flows and resistance to economic swings. 

If the market for roads, bridges, and pipes seems pretty straightforward, consider what the new high-tech infrastructure of 5G could mean.

Given that the transition from 3G to 4G wireless communication helped usher in the era of online banking, Uber, and Snapchat, the nationwide transition from 4G to 5G could mean big changes and opportunities. 5G offers the most capable wireless infrastructure available that has the potential to be 100 times faster than 4G, with increased connection capacity.

Market intelligence firm IDC forecasts that worldwide 5G connections will reach 1.01 billion in 2023. That’s up from approximately 10.0 million from 2019. That’s good news considering that 5G is anticipated to be a driver of technological growth for years to come, supporting the “future digitization and automation of systems, connecting smart sensors with AI.”

In a world where the internet is more capable and reliable than ever before, does the wireless transmission of energy seem like a thing of science fiction?

It’s not. In fact, it’s already possible through UV rays, microwaves, electromagnetic fields, inductive coupling, and via Wi-Fi. And, even our electric toothbrushes. If applied on a large scale to the world outside of our bathrooms, the wireless transfer of energy could be transformative. It could give people without a reliable source of power, in rural areas for example, wireless access to a sustainable power supply. 

The companies that make the component parts of this technology, like the makers of semiconductors that make chips for smartphones, are sure to soar with increased demand.  Consider also the makers of wireless sensors, which support new gaming capabilities of 5G, and the manufacturers of fiber optic technologies that support new 5G networks. 

It’s not just the makers of the hardware that will benefit. Mobile apps that require large amounts of data transfer, from Netflix to Spotify, are anticipated to see a boost from increased online capacity. Standard 5G systems are also expected to boost the speed and efficiency of cloud computing services. 

The future of infrastructure is twofold — on both an improved roadway, and improved information highway. The need for investment is not a surprise to lawmakers or to the average American — but the reality of investment, especially considering the looming September 30 deadline, is imminent.

How to invest in infrastructure 

Given the broad reach of infrastructure as an asset class, it can be challenging for investors to fully diversify their holdings. However, infrastructure-focused ETFs and mutual funds are a good way to access this sector without investing directly in individual companies. A search on Magnifi suggests there are a few different ways to do this.

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today. 

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]


forestry

Forestry

One of the more interesting quotes often attributed to famed investor Warren Buffett concerns planning for the future: “Someone’s sitting in the shade today because someone planted a tree a long time ago.” 

Forests take decades to grow and mature and only moments to destroy. Properly managing a forest involves meeting the economic necessities of the present while laying the groundwork for ecological health and economic potential into the future. Forests provide countless, critical ecosystem services, including storing and purifying water, stabilizing soil and preventing erosion, capturing carbon dioxide from the atmosphere, and fostering biodiversity. 

Forests also provide significant economic benefits, including timber for construction, wood pulp for paper, and firewood for heating and cooking. 

Historically, the ecosystem services and economic benefits of forests have often been in conflict with each other, with people often placing short-term economic benefits above long-term ecosystem health, ultimately at the cost of both. 

For a recent example of this conflict, look no further than the 2019 Amazon rainforest wildfires. In an attempt to clear land for cattle grazing, ranch owners across the shrinking Amazon rainforest lit fires that quickly spread out of control, burning an estimated 2.3 million acres of forest and darkening the midday sky of cities hundreds of miles away. 

Forests must be carefully managed in order to provide mankind with crucial economic benefits while also performing essential ecological functions. Millions of acres of burned rainforest may provide ranchers with a temporary economic boom in terms of a larger grazing area, but the long-term effects of haphazardly clearing forests result in dire ecological and economic costs.  

Professionals in the forestry industry work to achieve a sustainable balance between the environmental and economic demands placed on forests. Though the management of forests is a very old profession indeed, the forestry industry is currently in the midst of a rapid modernization as business and environmental interests implement technological innovations that increase profitability and improve ecological health. 

This modernization is especially significant because of the role forests play in fighting climate change. Forestry professionals are looking to innovation to help them do more with less, and the growing urgency to address climate change will likely mean that innovation will be highly valued.

For those interested in the investment potential of this important industry, there are a few key points to understand.

What is forestry?

The North Carolina Forestry Association defines forestry as “The art and science of managing forests to produce various products and benefits including timber, wildlife habitat, clean water, biodiversity and recreation.” 

As an industry, forestry is vast, encompassing a multitude of business operations concerned with harvesting, transporting, refining, and distributing forest products. Deeper still is the underlying machinery and technology that make modern forestry possible. 100+ years ago, harvesting timber often involved men felling trees with axes or saws and transporting the timber to a sawmill via mule train. These days, timber is often harvested using cutting-edge technology, such as the cut-to-length (CTL) harvesting method. With CTL harvesting, specialized equipment cuts, cleans, and loads logs for transport in a matter of seconds, all while operators are safely inside the machine cabs and away from falling branches and dangerous terrain.

There is a growing movement in the forestry industry towards what is referred to as “precision forestry.” Precision forestry is an approach to managing forests that utilizes advanced technology to unlock greater economic and environmental value through improved information gathering and operational control. 

For instance, lidar is a cutting-edge surveying technology that uses lasers to generate extremely detailed maps. After mapping a forested area using lidar, forestry professionals are able to accurately estimate the quantity of standing timber, as well as where the access road should be built and which machinery should be brought in to do the job. Better information through technologies like lidar means that forest managers are able to make decisions that improve cost-efficiency and minimize environmental damage. 

When combined with other cutting-edge technologies, such as drones, soil sensors, and IoT-integrated devices throughout the harvesting and reforesting process, precision forestry is set to unlock significant value across the forestry industry.

Why invest in forestry?

While the accelerated adoption of advanced technologies is likely to improve cost-efficiency and drive innovation across the forestry industry in the coming years, current trends indicate that the industry faces tough headwinds. The demand for construction lumber, which surged in the years following the Great Recession, is waning, and domestic producers are facing increased competition from foreign lumber firms. 

In the U.S., industry performance is highly correlated with the strength of the housing market: a robust housing market usually means more new homes and an increased demand for wood products. 

For instance, Weyerhaeuser (the largest forest product company in the U.S.) experienced a sharp stock price drop as a result of the Great Recession and the collapsing housing market, from a high of $86 per share in early 2007 to a low of $15 per share in mid-2010.

U.S. revenues from forest products in 2019 totaled about $128 billion, and revenues from exports of forest products in 2019 totaled about $16 billion. Paper mills, which currently comprise the single largest segment of the U.S. forestry market, are forecast to see revenue decrease by -2.6% annually over the next five years. Sawmills and wood production, the second-largest segment, are forecast to see revenue increase by 1.1% annually over the next five years. 

The segment with the fastest projected growth is prefabricated home manufacturing (think mobile or modular homes), which is forecast to see revenue increase by only 2.2% annually over the next five years – a sharp decline from the 8.6% annual growth the segment saw during the previous five years.

Successfully investing in forestry involves understanding the underlying market forces driving industry performance and trends, while assessing the value of a mid or long-term stake in the industry relative to other, higher-performing industries.

How to invest in forestry

However, forestry is a legacy industry that is dominated by a few major players. That means investors have few choices when investing directly, and that fact puts them at risk in the case of an industry-wide downturn. Investing in forestry via related ETFs and mutual funds, though, allows investors to access the space without tying them to any one company. A search on Magnifi suggests there are a number of ways to gain access to this segment via these funds.

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today. 

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]

 

 


Caterpillar (CAT)

The economic bellwether that no one ever thinks about, Caterpillar (CAT) is a company that designs, develops, engineers, manufactures, markets and sells heavy machinery and engines, including construction equipment, financial products and insurance worldwide. It is the world’s largest construction equipment manufacturer. As such, its success and failure are seen as a preview of what’s to come next for the economy at large.

The company was founded by the 1925 merger of the Holt Manufacturing Company and the C. L. Best Tractor Company, both of which were leaders in the field of steam equipment. Following the merger, CAT consolidated its product lines, eventually expanding into military vehicles and hardware sold to the U.S. Department of Defense in World War II. 

Today, Caterpillar produces machines ranging from tractors to hydraulic excavators, backhoe loaders, motor graders, off-highway trucks, wheel loaders, agricultural tractors, locomotives and more. Its products are used in the construction, road-building, mining, forestry, energy, transportation and material-handling industries.  

Rationale 

A direct way to gain exposure to Caterpillar is to buy the listed shares. But that can be a risky approach, given Caterpillar’s wide business interests. It’s no accident that fluctuations in CAT’s stock price are seen as an economic bellwether – a slowdown in construction spending often portends a broader economic slowdown. That ties Caterpillar closely to market forces that are outside of its control.

A solution that can dampen some of that volatility is to buy funds that provide exposure to Caterpillar and other similar firms, rather than CAT shares themselves. After all, the return drivers that will benefit Caterpillar might also benefit other similar firms in construction, manufacturing, and heavy industry. As investment management is gradually moving to the construction of portfolios using ETFs and mutual funds in addition to single stocks, investors would do well to consider gain exposure to firms like CAT through these types of funds.

Investing in CAT 

A search on Magnifi suggests that investors can gain access to CAT via a number of different funds and ETFs, including those shown below. 

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today.

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]