By Philip van Doorn, MarketWatch
A broad review of stocks ahead of the 2020 election points to several industries that are poised for good long-term performance regardless of who wins.
This led to a screen of the Russell 3000 Index to help narrow those industries to a handful of players that are already growing quickly.
In an in-depth article in Barron’s , Avi Salzman shares opinions of several money managers. A main area of concern is health care, with Sen. Elizabeth Warren of Massachusetts and other candidates for the Democratic presidential nomination proposing “Medicare for All.” Warren also has said she would try to ban hydraulic fracturing — the controversial oil-extraction method that has helped the U.S. become the world’s largest oil producer.
Warren’s plans help explain why energy has been the worst performer among the 11 sectors of the S&P 500 this year, despite a 22% increase in the price of West Texas crude oil /zigman2/quotes/209723049/delayed CL00 -0.22% . Health care has been this year’s second-worst performer:
|S&P 500 sector||Total return - 2019 through Oct. 29||Total return - 12 months|
|S&P 500 Index /zigman2/quotes/210599714/realtime SPX||23.1%||17.3%|
|Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA||18.3%||13.5%|
What about infrastructure?
It might be tempting to focus on the possibility of increased federal spending on rebuilding crumbling roads, bridges and water systems across the country, but President Trump and Congress have not managed to pass the needed legislation. Even if they did, the “shovel-ready projects” that politicians bandy about are never anything of the sort — it can take many years for even a repair project to gain all the regulatory approvals it needs, not to mention the complicated process of timing multiple funding sources.
Then again, as Barron’s Salzman pointed out, states have already increased their own infrastructure spending considerably. He cited three companies benefiting from this trend: Evoqua Water Technologies /zigman2/quotes/202309805/composite AQUA -0.73% , Construction Partners /zigman2/quotes/200500291/composite ROAD -0.93% and Granite /zigman2/quotes/200569846/composite GVA +0.70% . These are relatively small companies, with market capitalizations ranging from $558 million (GVA) to $2 billion (AQUA).
So rather than hope for a big federal spending bill, which, arguably, wouldn’t filter down to actual projects (and become revenue for infrastructure companies) for many years, it is more useful to look back to see which infrastructure companies have already been growing quickly.
Investors looking to play infrastructure companies as a group have several exchange traded funds to consider, but all of the large ones have a global focus, including the iShares Global Infrastructure ETF /zigman2/quotes/203179113/composite IGF -1.56% , the FlexShares STOXX Global Broad Infrastructure Index Fund /zigman2/quotes/201174234/composite NFRA -1.55% and the SPDR S&P Global Infrastructure ETF /zigman2/quotes/208807379/composite GII -1.50% . For exposure to infrastructure companies only in the U.S., the iShares U.S. Infrastructure ETF /zigman2/quotes/210170845/composite IFRA -0.75% is available. However, it is tiny, with only $7 million in assets. It was established in April 2018.
For investors looking to identify individual companies that can benefit from the infrastructure trend, we screened the Russell 3000 /zigman2/quotes/210598149/delayed RUA -1.08% (a broad index that covers roughly 98% of the U.S. stock market) to make sure the three infrastructure stocks mentioned by Salzman were included. We narrowed the screen to three industry groups as defined by FactSet: construction materials, engineering and construction, and environmental services.
Within the construction materials group, we then excluded companies whose sole business was providing sand and other materials for fracking, or whose products were limited to residential or other building construction.
This reduced the list to 42 companies ranging from a market cap of $62 million all the way up to Vulcan Materials, which has a market cap of $19.1 billion.