One of the most important aspects to consider when creating an investment strategy is to try and determine where demand might be in the future. Given the relatively weak global economy, this certainly adds complexity to long-term investing.
Austerity is the buzzword at the moment. Many governments are continually espousing the need for greater austerity. However, while austerity is the goal, there are still some areas where governments are increasing spending, creating an opportunity to develop an investment strategy. And this includes railways.
According to the consulting firm Roland Berger, the market globally for railway-related spending has been increasing at 3.2% per year throughout the recent global downturn, and they believe spending will increase at 2.7% per year until 2017. Roland Berger also predicts that metro rail systems will grow at a much faster rate, at an estimated six to eight percent per year. (Source: “Metro Systems: Going underground,” The Economist, January 5, 2013, last accessed February 14, 2013)
These types of projects appear quite favorable for those interested in long-term investing. With multiple countries increasing spending in their railway system, this should bode well for a diversified company with an investment strategy that can capitalize on these opportunities.
Countries interested in making significant increases on rail-based transportation include Brazil, India, many Middle Eastern nations, and China. Beijing now has the largest metro system in the world, at 442 km with just under six million daily users. The second-largest metro system is Shanghai at 423 km in length.
Long-term investing is about trends that last many years. While many firms say they are creating an investment strategy based on long-term trends, very few actually do. For many companies, the investment strategy is focused on consumers, which usually leads to a very short-term focus.
One company that is involved in long-term investing is Bombardier Inc. (TSX/BBD-B). Bombardier has two divisions: trains and airplanes. The company has a backlog of $58.6 billion combined. Total revenues are split, with approximately 48% coming from the transportation/railway division and 52% from aerospace. (Source: “Bombardier Announces Financial Results for the Third Quarter Ended September 30, 2012,” Bombardier Inc. web site, November 7, 2012, last accessed February 14, 2012.)
Chart courtesy of www.StockCharts.com
The stock has recently moved up from its bottom and is currently trading above its 200-day moving average (MA). The move upward has been quite strong, and some consolidation is in order.
The problem with an investment strategy through a company like Bombardier is that an order by a customer can be quite large, yet it can spread over many years. There is also the possibility of cancellations and delays due to changing government policies.
It is positive for those interested in long-term investing; but while many companies in this sector operate in countries that are expanding their railway infrastructure, it is extremely difficult to predict what will occur several years from now.
With the high level of government instability prevalent in many nations around the world, long-term investing becomes that much more difficult. I would certainly be cautious about an investment strategy predicated solely on government spending. I will be watching for Bombardier’s financial results on February 21 to get a clearer picture of how it sees global infrastructure spending for the future.
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By: Sasha Cekerevac
Posted: February 19, 2013, 7:33 am
We believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply....