|Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
Published: November 12, 2007
Playing the Global Boom in
The building and
construction boom is in full swing, and investors should sit up and take
notice. Not only has this industry strengthened over the past year, but
signs indicate that it's about to get even better.
For many investors, that might sound like a ridiculous statement or a
hopelessly anachronistic headline from the height of the housing boom.
After all, the most widely watched metric for the housing market is
housing starts -- a measure of how many new homes begin construction.
And as you may know, domestic housing starts plummeted to a 14-year low
in September. Even worse, the number of new residential building permits
filed that month plunged more than -30% year-over-year to a new 12-year
low, a sign that the U.S. residential housing market isn't likely to get
appreciably better anytime soon.
But I'm not talking about housing, nor am I solely referring to the U.S.
What about the firms that build power plants, roads, bridges, water
treatment facilities and even commercial office buildings? Millions of
investors ignore this other side of the construction business -- whose
players are loosely grouped under the term "non-residential
construction." However, my staff and I think this is about to change.
Demand for such projects has little to do with housing. For example,
roads are typically financed by state, local or even Federal governments
-- spending often remains steady, even during recessions. And while U.S.
home prices have started to fall, the value of office space has not --
in many of the nation's largest cities, office rents continue to rise.
chart tells the story -- while spending on U.S. residential construction
topped out in late 2005, spending on non-residential construction
continues to soar.
And the trends so evident here
in the U.S. are magnified many times over in fast-growing emerging
markets. In China, for example, millions of new drivers take to the
roads each year -- new car sales are on track to hit 6 million vehicles
in 2007. All these drivers need a modern highway system, and that means
big spending on roads.
And consider the burgeoning economies in cities like Mumbai, Shanghai
and Beijing -- all that business development adds to strong demand for
new office space.
With these points in mind, here are some of the major non-residential
construction markets that are likely to see growth in the coming years,
both in the U.S. and abroad . . .
to the U.S. Department of Energy, Chinese demand for electricity is set
to jump more than three-fold between 2004 and 2030. And as the chart
below shows, India isn't far behind.
The end result of all that
demand: a new power plant opens in China nearly once per week. The
nation is building all sorts of plants, from traditional coal-fired
facilities to the massive Three Gorges hydroelectric project to a fleet
of modern nuclear plants. But even then, parts of China are still
plagued by rolling blackouts -- rapidly rising demand simply overwhelms
supply, despite the heady pace of new plant construction.
And China and India aren't the only nations that are short of power.
While U.S. power consumption growth can't match that of China, it's
still steadily rising. In fact, over the past summer electricity demand
soared to record levels in parts of the country. Electricity generation
capacity simply wasn't sufficient to meet that demand, causing blackouts
in some cases. And the situation isn't going to get any better
immediately -- the U.S. simply hasn't built enough power plants to keep
pace with growing demand.
But that's changing. Utilities have filed permits for the first new
nuclear power plants since the 1970's. And coal plants are still
breaking ground, despite environmental objections from some quarters.
Bridges and Roads
This summer, the devastating collapse of the Interstate-35 West Bridge
in Minneapolis, Minnesota made headlines all over the world. This wasn't
some minor backcountry crossing -- it's estimated that more than 140,000
motorists traversed the span each and every day. Tragically, thirteen
died in the collapse, while more than 100 were injured, many seriously.
While the cause of the collapse hasn't been officially revealed, the
bridge was cited as "structurally deficient" by the federal
government due to corrosion. Like most bridges in the U.S., the I-35
bridge was decades old, built and opened for traffic in 1967.
Unfortunately, a horrifying 75,000 bridges nationwide have also been
certified as structurally deficient -- many are as old or older than the
Minneapolis I-35 bridge.
The devastating collapse has prompted many state, local and federal
officials to re-examine bridges with potential structural deficiencies.
Already, as a direct result of the Minnesota disaster, some bridges are
being closed or weight restricted for repairs.
And road construction isn't just about safety -- we've all complained
about traffic at one point or another. The Texas Transportation
Institute (TTI) published a survey in 2003 measuring the amount of time
commuters spend stuck in traffic each year across 75 of America's
largest cities. The results are astounding -- the TTI estimates that
drivers waste more than 5.7 billion gallons of gasoline per year sitting
in traffic jams -- and that's just in just the 75 urban areas studied.
With gasoline at $3 per gallon, that's a more than a $17 billion annual
drain on the economy.
And that's only part of the cost. The study also showed that commuters
wasted some 3.5 billion hours annually on the road. And that's not to
mention the environmental effects -- the longer it takes to make a
journey, the more pollution a car emits. The all-in cost to the U.S.
economy: more than $70 billion annually, or about $520 per person.
Many of the nation's major roadway systems date back to the 1950's and
1960's, when there were far fewer cars on the road. For years, this
growing problem was largely neglected. However, that's starting to
change, as U.S. roadway construction spending has risen sharply over the
past two years.
While $100 per barrel crude oil and $3 per gallon gasoline get a lot of
press, water shortages rarely make the national news. Of course, few
think of that, because water is assumed to be safe and almost free --
most of us take clean water for granted.
But perhaps that's naive. Over the past five years, several major cities
have been forced to issue "boil water" alerts to protect
consumers against contaminated water systems.
And safety isn't the only issue -- consider that many water systems in
major cities across the developed world date from before World War II.
For example, according to the World Wildlife Fund, ageing leaky pipes
and reservoir systems waste 300 Olympic-sized swimming pools worth of
water per day in London; last summer that city was forced to issue water
restrictions due to a shortage. And in the United States, a severe
drought in the Southeast has left Atlanta's key reservoirs with less
than a 90-day supply of water.
And outside the U.S., the problem is even more severe. Strong population
growth in the Middle East and Asia is forcing governments to spend on
desalination plants and reservoirs. In China, for example, the
government has forecast that by 2030, the nation may have a more than 50
trillion gallon annual water shortfall -- that's more water than China
currently consumes in a year. The country plans a series of projects to
help alleviate the problem, but many remain concerned about water
shortages ahead of the Beijing Olympics next summer.
While sales of U.S. residential properties have weakened notably over
the past two years, the same cannot be said of office buildings.
According to statistics published by CB Richard Ellis, the U.S. office
vacancy rate -- a measure of what percentage of U.S. offices are without
a tenant -- stood at 12.6% at the end of the third quarter. That's
actually down considerably from the 13.2% vacancy rate from just one
In many downtown markets, availability is even tighter -- the vacancy
rate in these markets stands at just over 10%, the lowest reading since
early 2001. Thus, demand is tight enough to continue prompting
developers to build new office space.
And once again, some foreign countries make the U.S. market look weak in
comparison. In Singapore, for example, strong growth in the financial
services industry has triggered a boom in demand for premium office real
estate -- rents have tripled since 2003. Rents actually hit a new
all-time record in the third quarter of 12.6 Singaporean dollars per
With all of these points in mind, companies that build the roads, water
systems, office parks and power plants the world so desperately needs
stand to benefit from a wave of spending in the coming years. In the
text that follows, we profile two of our favorite plays on the boom in
non-residential construction spending . . .
Note: Throughout the remainder of this article, StreetAuthority
co-founder Paul Tracy provides an
in-depth look at his two favorite non-residential construction stocks.
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founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to
that he spent several years as Managing Editor at a multi-million dollar
financial publishing firm with over 150,000 subscribers. In addition to
his role as managing editor and lead financial writer, he was also
responsible for equity research and managing a team of seasoned
professional financial writers, researchers and market commentators.
Paul's previous experience
includes a position at Robert W. Baird & Co.'s full-service
brokerage operations as well as economic research work on a Money and
Banking project funded by the National Bureau of Economic Research. He
has also spent time doing outside consulting and research for the
University of Virginia, has appeared as a guest expert on several
prominent financial radio shows, and has been a featured speaker at
various investment conferences across the U.S.
Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
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