Dear Mr. Berko: I want to invest $40,000, which is about 15 percent of my individual retirement account, in construction stocks that will benefit by President Donald Trump's infrastructure spending. Please recommend four or five issues for me. Meanwhile, I've finally made up my mind (against your 2013 recommendation to me) to move to a smartphone. Is there a model or brand that you would recommend?
- FF, Rochester, Minn.
Dear FF: Ask a teenager, not an adult. The average smartphone user has experienced a 27 percent weight gain in the past five years. Just look around you.
Few civilized men have heard of Aecom (ACM-$37.17), a $17.4 billion-revenue company with 92,000 employees. ACM provides consulting, engineering design and construction management services for highways, airports, bridges, mass transit systems and water and wastewater facilities for commercial, industrial and government clients. ACM has had disappointing revenues and earnings during the past few years, but the shares have rallied nicely since Trump's victory. There are a large number of road infrastructure ballot initiatives across the nation. And Wall Street is bullish on ACM's prospects for road infrastructure, especially the possibility that Congress will be generous in funding many upcoming initiatives. Over the coming four years, ACM's revenues may grow to $22 billion, and its net profit margin may improve to 3.4 percent. Earnings could grow from $2.95 a share to $4.60 by 2021. ACM has a good balance sheet and had a strong cash flow of over $700 million last year. Argus Research, Bank of America, Credit Suisse and Thomson Reuters have "buy" recommendations on ACM. Consider buying ACM on a pullback to $32 with a good-till-canceled order marked "do not reduce."
Valspar's (VAL-$104) merger with Sherwin-Williams should make the resulting company a plum investment for infrastructure spending. VAL sells decorative and protective coatings for metal, woodwork and plastics, primarily to original equipment manufacturers, and it also sells consumer paints, stains, primers, varnishes and faux finishes. VAL has been selling stuff since 1806, when Tom Jefferson was president; it was also the year in which Ralph Wedgwood invented carbon paper. This $4.2 billion-revenue firm with 5,200 employees enjoys strong and improving net profit margins, a dividend that has been increasing by 10 percent annually since 2008 and an impressive 34 percent return on equity. The Street believes that in the coming four years, VAL could post 25 percent revenue growth and a 40 percent net earnings improvement, though the dividend growth may be slower. Bank of America and J.P. Morgan believe that VAL could trade between $140 and $145 in the next four years. Place a good-till-canceled order at $92, and mark it "DNR."
United Rentals (URI-$110), with an integrated network of over 900 rental locations in the U.S. and Canada, rents a whole lot of stuff and things -- such as backhoes, skid loaders, forklifts, earth-moving equipment, material-handling equipment, aerial work platforms, boom lifts, scissor lifts, pressure washers, pumps, power tools, diesel generators, hydraulic shoring systems, crossing plates, trench shields and most of the other things needed to rebuild America's infrastructure. Revenues for 2017 should come in at $5.76 billion, very minutely higher than 2016's $5.65 billion, and earnings may come in at $8.45 a share, just slightly up from $8.15. However, going out four years, Morningstar suggests an impressive turnaround; revenues are projected at $7.3 billion, and earnings could come in at $12.35 a share as management improves net profit margins by nearly 50 percent, from 10.1 percent to 14.8 percent. Some say URI could trade in the $165-$175 range by 2021. Place a GTC order at $98.50, and have the stockbroker mark the ticket "DNR."
Finally, consider the PowerShares Dynamic Building & Construction Portfolio (PKB-$28). This exchange-traded fund is managed to correspond to the price and yield of the Dynamic Building & Construction Intellidex index. PKB will invest a minimum of 90 percent of its assets in the common stocks of the building and construction companies included in that index. Some of those issues are Home Depot, Jacobs Engineering Group, A.O. Smith, Boise Cascade, Mohawk Industries and Insteel Industries. There should be some attractive upside here. Place a GTC order at $24.15, and once again, mark it "do not reduce."
-----
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@ yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
COPYRIGHT 2017 CREATORS.COM
Published: Thu, Jan 12, 2017
