Morgan Stanley strategists are coming out very bullish on the building materials sector should a long overdue infrastructure bill get passed under President Joe Biden.
"U.S. infrastructure investment has run $1.25 trillion below trend over the past decade. An infrastructure deal could set the stage for a super cycle, especially in cement, with beneficiaries re-rating," said a 15-person team of Morgan Stanley strategists in a new report titled "Paving the Way for U.S. Infrastructure Super Cycle." "An infrastructure package could catapult building materials into a super cycle similar to the 1950s. We are 10 years into the current construction cycle, exiting a recession, and potentially facing a government-underwritten cycle of another 10 years."
The group estimates the U.S. infrastructure needs $3 trillion in repairs. As for stock ideas to play this hoped-for super cycle, Morgan Stanley highlights five names poised to benefit: Cemex, Vulcan Materials, Martin Marietta, Summit Materials, and CRH.
"We decompose the $3 trillion into $398 billion for concrete bridges, $796 billion on concrete roads, steel bridges at $300 billion, and $1.6 trillion to take asphalt roads from poor to good condition. Without changing assumptions on housing or commercial construction, we show that the uplift from infrastructure would be enough to produce another super cycle," contends the Morgan Stanley team.
The super cycle call on building materials makes sense.
Then presidential candidate Joe Biden outlined a more than $2 trillion infrastructure plan called Build Back Better. He said it would be the “largest mobilization of public investment since World War II.” Among other proposals in the plan, Biden would devote about $400 billion to expanding clean vehicle technology, steel production and other building materials. He is also earmarking $300 billion for investments in 5G and artificial intelligence."
Now that Biden is president he is expected to make a push for the Build Back Better plan once another round of COVID-19 relief gets passed.
To be sure, the time for a big infrastructure plan is long overdue and desperately needed.
According to new research from the American Society of Civil Engineers, the U.S. economy stands to lose $10.3 trillion in GDP by 2039 if an infrastructure bill isn’t passed. A total of $9 trillion in disposable income among households will be lost over the next 20 years, the research shows. The current state of America’s infrastructure — including gaping potholes on roads, outmanned electrical grids, and suboptimal public transport — is costing the average household in the country $3,300 a year.
U.S. Steel CEO David Burritt recently told Yahoo Finance Live he is looking for an economic super cycle post-pandemic that should power demand for steel.
"I have to say I have gone from — even back in the second quarter of last year — cautiously optimistic, dare I say bullish and now I am sensing there is a super cycle here with lots of cash and liquidity from the Fed. [Federal Reserve Chairman Jerome] Powell did an incredible job last year just amazing. Then we have the relief bill going into place. Even money in that relief bill hasn't been spent, another $1.9 trillion," Burritt said.
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