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How to Pick the Infrastructure Winners in a “Trumped Up” Market

8 | By Shah Gilani

President Calvin Coolidge famously said, “The chief business of the American people is business.”

Thank goodness we’re getting back to that.

President-elect Donald Trump, a successful businessman himself, says rebuilding America’s infrastructure is his number one business priority.

That’s great for America… and great for investors betting on infrastructure businesses.

Over the past three days infrastructure stocks have been on a tear.

They’ve been bought up at a furious pace, propelling indexes higher and pushing the Dow Jones Industrials Average to all-time record highs.

And it’s not too late to get in on the action…

The Rising Tide Will Not Lift All Boats

So-called infrastructure stocks – engineering companies, construction companies, heavy equipment makers, industrial materials manufacturers, miners, energy companies, toolmakers, and a host of other building related industries – have mostly been out of favor.

With Donald Trump’s election, investors have been rotating into these stocks at a furious pace, while at the same time dumping stocks they fear will be hammered if Mr. Trump makes good on his campaign promises.

While jumping on hot momentum stocks isn’t a bad idea, rushing into the big gainers that just exploded higher in a matter of three days might be dangerous.

Everyone knows stocks don’t go up forever. So piling onboard suddenly screaming stocks while the rest of the market struggles may not be the wisest move right now.

Besides, not all infrastructure-related companies are going to be employed in America’s rebuilding.

If you own some infrastructure-related companies whose share prices have just popped higher, stick with them.

But because not all boats will rise with the coming tide, it makes sense to employ trailing stops on those positions.

By having stop orders down on your positions, and raising those stop orders as your shares rise, you can rest assured you’ll lock in profits if the rush into them turns around on account of profit-taking or the fact that they may not be beneficiaries in the upcoming building binge.

Besides, we’re not there yet.

Mr. Trump has to get into office and then he has to come up with the money to start the thousands of building projects we all want to see.

On the way there, he’s going to come up against the dreaded debt ceiling in March, very early on in his first 100 days in office. Raising the debt ceiling, again, in the face of needing to raise hundreds of billions of dollars needed to rebuild America isn’t a slam dunk.

Spending heavily on infrastructure will also put upward pressure on interest rates.

A showdown over raising the debt ceiling and the prospect of rising rates could hit the markets. And those aren’t the only headwinds markets are facing.

Our Blueprint for Profiting on Trump’s Infrastructure Boom

So the questions to ask are: which infrastructure stocks are likely to be big beneficiaries of America’s building renaissance, and when should you get into them?

Since there are no guarantees of who the winners will be, it makes sense to buy stocks that are winners either way.

That means buying solid companies with a history of getting government contracts, a history of making money and, for me, a history of paying dividends.

There are plenty of other companies whose stocks may become high-fliers, but we’re just at the starting gate, and it doesn’t make sense to speculate on what we don’t know.

By getting into infrastructure stocks that have been lagging, which usually means investors will rotate into them to catch their move up and out of the doldrums, that also have a decent dividend yield, is the smart way to start building your rebuilding portfolio.

For starters, I like Caterpillar Inc. (NYSE:CAT), Deere & Co. (NYSE:DE), Emerson Electric Co. (NYSE:EMR), Cummins Inc. (NYSE:CMI), and Nucor Corp. (NYSE:NUE) all for their dividend yields and because they are proven winners.

The problem with them is they’ve all been bid up through the roof and are way too lofty for my liking right this second.

As far as timing when to get into them so that you don’t miss the boat if they keep going higher, I like selling out-of-the-money puts on them.

Puts are options contracts that give the contract holder (in this case, the person you’re selling to) the right to sell that stock back to you later at a predetermined price (the strike price).

By selling out-of-the-money puts, you collect some money up front.

If share prices go up and you don’t get into the stock, you’ve at least made some money on its move up.

If share prices go down, you have the obligation to buy the stock if you get “assigned” on your put options and have to buy at the strike price.

And if the stocks you sell put options on go down enough and you have to buy them, which you want to do anyway, you’ll get them at a lower price than they are trading at now.

That’s how I like to play stocks I want to own if I think they’re too pricey on account of having just been bid up on short-term speculation.

Of course, there’s another way to get into them right away and protect yourself if they go down.

Buy them now and look forward to collecting the fat dividends they pay, while you hope they appreciate, but buy put options on them at the same time, in case prices go down. That way you’ve got downside protection.

The stocks I recommended all have good dividend payouts, which can be used to pay for put options that protect your downside.

I’ve got a ton more great infrastructure plays teed-up for my newsletter subscribers, a few of which I’ll tell you about after we get into them.

There’s going to be a lot of money to be made on rebuilding America, and we’re all going to participate in that, so keep reading here for smart plays on the infrastructure windfall.

Sincerely,

Shah

8 Responses to How to Pick the Infrastructure Winners in a “Trumped Up” Market

  1. Robert Pacione says:

    I really appreciate your forsight as it all rains true by my book. Id look closely to who has been long time friends of Trump and whos been building his towers over the years. Be my first quess. I forsee myself that he will do good on his promises. He has everything to gain by winning on his word. Democratic parties for years have mislead tge peopke and it has finally caught up to them. Clinton was a puppet. Without question. If she one. I only ever say her future was a disaster for your country. Obama sold out as much of America as he could and Hillary and the hidden agenda was being compromised anyways. Damaged goods and secrets were out and to risky to continue exposure. Yet! Trump soon to be running. Its obvious he is loyal to his crews and his visions are strong and direct without illusions. At least not yet! Let him get comfortable and allow him to absorb the actual truth he has not encountered yet! Listen for the silence through the military movement in the skys and the new super power theyve gained on the ground with there iron man suits and super soldiers. When he realizes and breaks bread with the whole truth. His perspective will be one to follow at that point. You will see the change in him. That is ok by my standards.

    Great article!

  2. How much Coal did you get !? says:

    Hey. How about that generosity readers, instead of the sickening endless tease-a promise to show you the good$ made in near future, thats pretty fair deal. i had orders in for puts on tlt and tbt. Only $20 WORTH WENT THRU on 2 contracts for 0.11 cents each , less than a week before the election. Weighing odds in favor of a Trump upset, i held off on getting more. It was more sloppiness due to insane news i was out of sorts. Each contract i held for 100 pieces X 0.11 cents was 11 bucks, @ 2 contracts. My $20spot spare bills turned into $300+ in a a week. Thats a sale @ $1.67 x 100 & $1.63 x 100 on friday. From .11cents X 200 to $1.65[combined] X 200…this is a 15 bagger in less than 5 trading days. thats a 1400% return, if you annualize that, dont bother. My intention was to get into this $100 a day for 3days Wends Thurs Fri= woulda coulda 5 Large. I got too busy for my own good. Dont reinvent the unnecessary. The advice here is worth the money.

  3. P.Root says:

    Trump is not a successful business man. He has been bankrup several times, has cheated people and companies who he hired, and withheld debt payments with the threat of exposing them to unpleasant publicity. Check it out.

  4. ED DEE says:

    that guy is right,trump is loyal to contractors he has worked with to build his towers and human nature tells you that he will go with them,or his kids will,but the whole trick of making money is to get the cheap shares and finding out which ones they are,contractors that is.insiders will know first.not what you know ,its who you know.

  5. D. M. Bernier says:

    Dpnald Trump, is a great business leader and a loyal USA citizen. He will “Make America Great Again”. We will be thankfulll that he is our leader.

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