May 082017
 

How to Invest in U.S. Infrastructure 

Donald Trump’s policies focus on building infrastructure and prioritizing America first. With the U.S. economy growing stronger than Canada’s, I believe this is a good time to look south of the border for opportunities. Thanks to the Trump rally, the S&P 500 market index in the U.S. is up about 7% year to date. It appears the market could reach even higher by the end of the year. 🙂

One way to invest in a country’s growing infrastructure is to buy ownership in stable, and profitable cement and construction companies! But the concrete business isn’t always what it’s cracked up to be. 😄 There is a lot of competition in this space so it’s important to invest smartly. I have done research into several companies such as Martin Marietta Materials (MLM), Vulcan Materials (VMC), and others. But the company I liked most was Summit Materials Inc (NYSE:SUM)

Summit Materials is in the business of cement and small rocks called aggregates used to make roads and buildings. In addition to supplying aggregates to its customers, the company also uses its materials internally to produce ready-mix concrete and asphalt paving mix production. I like the widespread geography that Summit is operating in. It conducts business in over 20 states, including Texas, which borders Mexico. I’m looking forward to that wall being built. 🙂

I guess you can say this company rocks. 😄 Valuation wise SUM is slightly expensive, but is actually fairly valued when compared to its competitors in the market. Over the last year the company earned $0.88 per share. According to analysts, the company is expected to grow its earnings at 10.5% a year over the long run. We can use the Graham Formula which I’ve explained here, to determine the fair market value of this stock.

Doing so will give us a Graham value of $25.96 per share. (V = 0.88 x (8.5 + 2 * 10.5)

So earlier this year I purchased 100 shares of Summit Materials (SUM) at $26.15 per share. 🙂 I plan to hold this stock in my margin account for at least 10 years. Analyst consensus appear to be optimistic for this stock. Today, the stock is trading at roughly $28 per share. But the average 12 month target on Wall St. is calling for $32.10 per share, a 14.7% increase.

Naturally it’s hard to predict how the stock will perform over the next year. But will it return on average about 6% to 12% a year for the next 10 years? I don’t know, but I’d reckon it’s pretty darn likely. 🙂 That’s why I used 100% leverage on this stock. It has a pretty good asymmetrical advantage in my favour.

As some readers have requested in the past, I have created a list of stocks and bonds that I currently own. You can view them all using the menu at the top of this blog, under “Portfolio.”

I have separated the lists. One will show my TFSA and RRSP holdings.

The other one, which includes my new Summit (SUM) stock, will show all my non-registered holdings.

I will probably update these lists a few times a year.

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Random Useless Fact:

In the U.S. the ratio of males to females named Alex is about 50 to 1.

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4 Comments on "Betting on Infrastructure with Summit Materials Stock (SUM)"

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John R
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John R

SUM, well what can be said about it?

Would I invest in a company that has a projected growth over 3 years of 3000%, or that projected stock price is above $30 or the projected next 3 years ROE of 20% is less than industry average?

Not knowing the future ever, if I was to play this stock I would definitely hedge my position, but looking at the long call options for November 2017 there is no premium to protect my downside, nor are there any dividends.

Liquid, its a crap shoot IMO, buy it & see what happens. If I was to buy & hold this my time horizon would be 12 months or 20% increase in the stock price then sell

John R
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John R

Liquid I should have also included in my previous post my source being simplywallst and swingtradebot

DivGuy
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The reasons why you looked in the industry are smart. Thought about stocks that would benefit from the Trump team too. However, I’m not sure it’s a good call in the long run. Wouldn’t be in my core portfolio. It could be a stock to buy, to watch every quarter and to sell after a couple years. Yet I don’t know much about it and should dig deeper.

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