| NEW YORK
NEW YORK Dec 7 Optimism about President-elect
Donald Trump's U.S. economic agenda has sent shares of
construction and engineering companies soaring, but the stocks
may be vulnerable if benefits from infrastructure spending or
other policies fall short.
The gains of 20 percent or more for companies such as
Granite Construction Inc and AECOM reflect the
exuberance that has swept through the industrial sector since
the Nov. 8 election.
Some of these companies are potentially in a sweet spot as
Trump's victory ripples through Wall Street.
The companies could benefit significantly from a massive
economic stimulus package that includes infrastructure spending,
while expected domestic corporate tax cuts stand to give a big
boost to their profitability.
Expectations of an easier regulatory climate could speed up
projects. Many of the companies also operate predominantly in
the United States, so a stronger dollar would not create an
"There's a lot of unbridled optimism around infrastructure
and lower tax rates that are driving these stocks," said analyst
Sameer Rathod of Macquarie Research in San Francisco.
But Rathod added: "Our sense is the market is pricing in a
lot, so we think there's probably more room to disappoint."
The S&P 500 industrial sector has risen about 8
percent since the presidential election, compared with a 3.5
percent gain for the broader S&P 500.
In the wake of last month's vote, more than $4.5 billion
flowed into industrial mutual funds and exchange-traded funds,
according to data from fund-tracking service Lipper.
The S&P 1500 Construction and Engineering index
has gained 21 percent since Nov. 8. On Wednesday, it touched its
highest level since April 2014.
In an example of the bets placed on the industry, assets for
the Powershares Dynamic Building & Construction ETF more
than doubled in November to nearly $200 million, with $105
million flowing in since Trump's win, according to Lipper.
Among the biggest share gainers, AECOM has soared 38
percent, Sterling Construction has climbed 36 percent,
and Aegion Corp has increased 27 percent.
A group of more than 20 engineering and construction
companies tracked by D.A. Davidson & Co is trading at about 19
times earnings estimates for 2017. That compares with a
historical average of about 15 or 16 times for the stocks, said
John Rogers, D.A. Davidson's head of institutional equity
While the market assumes more building is likely to go on
within the United States, "I don't think all companies are going
to participate or benefit equally," Rogers said.
Investors will be watching how fast Trump can implement his
proposals once he gets into office on Jan. 20, including whether
he can come through with his vow to push through $1 trillion in
Even if he does, however, Westwood Holdings Group Vice
President Scott Lawson, who analyzes the industrials sector, is
uncertain about how much new spending on infrastructure projects
would boost industry profits.
Without "that strong move in earnings power," Lawson said,
"then the valuation is high relative to history."
(Reporting by Lewis Krauskopf; Editing by Rodrigo Campos and
Lisa Von Ahn)