5 stocks to watch as infrastructure dollars start flowing

This article was originally published by Canadian Business.

Blacktop politics are as old as the roads that led to Rome, but the time lag between a politician promising to improve public infrastructure and cutting the ribbon has grown longer—to years, and sometimes as much as a decade. Projects must be identified, cost-sharing with local governments negotiated, engineering studies conducted, budgets set and land acquired before a shovel ever strikes the dirt. That’s assuming there are no protests or legal challenges.

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The federal Liberals came to power a year ago in large part on their promise to invest $120 billion in infrastructure over the next decade, essentially doubling Ottawa’s spending from the previous 10 years. So far, not much has been spent. About $1.8 billion had made its way into the economy as of June 1. A lot of Canadian businesses are eagerly awaiting this economic stimulus amid an otherwise sluggish environment. But it is infrastructure companies that are first in line to get their hands on the cash.

Investors in those companies will need to be patient, cautions Mona Nazir, a research analyst Laurentian Bank Securities, but the money will come—and so, too, will higher earnings and equity prices. Many of these companies already enjoyed a bump in share prices when the Liberals won the election, and again after the budget announcement, but Nazir thinks the real gains will come once the extra cash starts showing up on balance sheets. “As the money flows through, organic growth should be higher,” she says.

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The bigger, more expensive projects, such as roads, bridges and water pipe upgrades, will likely start getting funded in 2018, says Nazir. However, Maxim Sytchev, an analyst with National Bank Financial, thinks money will start moving as early as 2017. Once that happens, Sytchev says, “the tide will lift every boat.” Architects, contractors, engineers and equipment sellers should all see some uplift, as should makers of infrastructure inputs such as concrete, formed steel and utility poles.

Of course, some companies will benefit more than others. CB singles out Bird Construction, Stantec, IBI Group, WSP Global and Pure Technologies.

For why these five stocks poised to benefit from infrastructure spending, visit Canadian Business.

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