- The Trump administration has committed to major infrastructure legislation, sending construction and service stocks higher in 2017. Rebuilding from hurricanes Harvey and Irma will also create a big tailwind for construction and rebuilding. Infrastructure stocks will benefit.
- Geospatial Corporation (ticker: GSPH) is perfectly positioned as a provider of critical technology to the construction and engineering industries, and the stock has huge upside in 2017 as management executes.
The potential for huge spending on roads, bridges, and utilities has sent infrastructure stocks flying since President Donald Trump's election last November. The move isn't over as major weather events have hammered Texas and Florida, and some companies are especially well-positioned for the influx of new infrastructure spending. It may be uncomfortable, but viewing these recent catastrophic events as investors presents some attractive opportunities
A Perfect Storm of Catalysts for Infrastructure Stocks
Three catalyzing events are rapidly approaching for infrastructure stocks, and traders are positioning to benefit: a new spending bill from the Trump administration, Hurricane Harvey rebuilding efforts, and Irma relief efforts as well.
The stock market has rallied 20% since Trump's election, to new all time highs, as investors have bet on a combination of business-benefitting legislation: the possibility of lower corporate taxes, a tax holiday for repatriating overseas cash, and the potential for massive infrastructure spending that would stimulate the American economy in ways not seen since the 80s.
And the iShares Global Infrastructure ETF (NASDAQ: IGF) has outpaced the S&P 500 significantly since Trump's election, demonstrating that this theme has legs. Big board construction and engineering companies have already seen an influx of new investors betting on Trump's campaign promises to allocate more government money to new infrastructure projects, as well as pursue private/public partnerships - particularly advantageous for savvy investors.
The American Society of Civil Engineers estimate that revitalizing America's roads, bridges and energy conduits could take $4.6 trillion over the next ten years. For perspective, that's more than the entire federal budget for 2017! Any major infrastructure spending will take years to play out entirely, but Donald Trump campaigned on promises of massive transportation investing quickly, with comments ranging from $500 billion to $1 trillion to be set aside for infrastructure projects.
An infrastructure spending proposal may come as soon as this summer, according to House Transportation Committee Chairman Bill Shuster (R-Pa.), which sets up a big potential event for the companies that operate in this industry, like construction companies and those that provide equipment or services to the industry.
Unfortunately, flooding from hurricane Harvey has also put immense pressure on Houston and surrounding areas, and hurricane Irma has damaged southern Florida. The damage from Harvey, a Category 4 hurricane, could cost between $150 billion and $180 billion, said Texas Governor Greg Abbott last weekend. Irma, meanwhile, is expected to result in damages of $30 to $40 billion.
These set up two more huge tailwinds for companies that build, service, and maintain America's infrastructure.
GSPH: An Overlooked Company With Big Potential Upside
Most investors will already be familiar with the likes of Caterpillar (NYSE: CAT), Deere & Company (NYSE: DE) and Aecom (NYSE: ACM). These companies provide the equipment and design services for major infrastructure and repair undertakings in the U.S., like road and bridge building.
Meanwhile, smaller companies have gone mostly overlooked. Geospatial Corporation (OTCMKTS: GSPH) provides locating and digital mapping services for underground pipelines and infrastructure. The company primarily serves companies in energy and utilities, counting Verizon (NYSE: VZ), Chevron (NYSE: CVX), and PG&E Corporation (NYSE: PCG) among their clients. But this year could be all about municipal expansion as the United States' ageing infrastructure gets a federal boost, and hurricane clean-up requires new systems.
GSPH saw a huge influx of new business in 2016, with sales increasing by 760% over 2015.
Geospatial uses a suite of technologies to locate the exact position and depth of underground pipelines and conduits, with gross margins around 70% on these services. The data are uploaded to their cloud-based data management software called GeoUnderground GIS (Geographic Information System) to allow clients to visualize the underground infrastructure. For instance, the company recently mapped three pipelines under the Savannah River that were submerged under 90 feet of water and silt. Remarkably, the company is a Google Cloud Partner, using Google's unrivaled mapping platform as the backbone to GeoUnderground, and benefiting from the marketing relationship as well.
Just how great is the need? Improper underground mapping is a major issue in the U.S., with most regions relying on antiquated maps or location technology. No one has a full picture of the underground utilities in the U.S., and a line strike happens almost every minute as a result, costing millions in damage and construction over-run.
The federal government is cracking down. Last year congress passed the PIPES Act, which regulates federal minimum safety standards for natural gas, oil, and petrochemical pipe. In the U.S., 64% of consumed energy commodities are transported through a network of more than 2.6 million miles of pipeline, all of which must be properly maintained under the new PIPES legislation to avoid disastrous line strikes. Stock in Anadarko Petroleum Corp (NYSE: APC) have lost 22% of their value, or $6bn in market capitalization, since an explosion this spring due to a cut line in Colorado. In the wake of that catastrophe, two Colorado state representatives introduced bills requiring complete digital mapping of all pipelines in the state, and we could see more states follow suit. From a business and legal perspective, energy companies simply can't afford NOT to know where their lines are.
Meanwhile, municipalities and contractors will have miles and miles of underground infrastructure to contend with during the cleanup, excavation, and new construction that will follow in the wake of hurricane Harvey. Texas is already one of GSPH's primary service regions where they work closely with numerous oil and gas companies, and the potential for GSPH to simplify the Harvey relief effort with their 3D imaging technology and even remote video to check existing lines is tremendous. The Savannah River project accounted for nearly 20% of 2016 revenue, indicating just how quickly projects can add up for this undiscovered company. Management owns more than 30% of the company, suggesting that executives are incentivized to perform for shareholders.
Traders are beginning to take note of regional industrial companies. The Texas-based construction company Sterling Construction Company (NASDAQ: STRL) specializes in the building and reconstruction of transportation and water infrastructure projects (including wastewater and storm drainage systems) in Texas, Utah, Nevada, Colorado, Arizona, and California. In just the last two weeks, STRL has rallied 31% with hurricane Harvey. Meanwhile, shares in The Goldfield Corporation (NYSE: GV), another electrical infrastructure service provider, have ripped 28% in days as traders realized that this company does most of their business in the mid-Atlantic and Texas regions.
What's GSPH potentially worth? The Company already works with some of the largest oil and gas companies in the U.S., like Kinder Morgan (NYSE: KMI) and Chevron, to name a few. What's changing is that the conversation for energy companies is moving from "we need one line mapped" to "we need ALL of our lines mapped" in the wake of recent events, and this transition could be the catalyst that drives GSPH revenue from the hundreds of thousands into the millions in the next 12 months. At the same time, the possibility of major government infrastructure updates and for municipalities to map their entire infrastructure could catalyze the next monumental shift for Geospatial, taking revenue from the millions into the tens of millions - and GSPH along with it.
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