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VIDEOTrendspotting: Investing in Federal Stimulus Projects
By
Carol Kopp
Aug 17, 2010 9:20 am
Much of the money is being routed back into companies such as engineering giant Siemens and its competitors.
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This is not an era of moderation in political discourse. But considered apolitically, a lot of that federal money inevitably is turning up in places that are of interest to investors.
One prominent example is Siemens (SI), the engineering giant that's based in Germany but is considered a global bellwether for industry. The company recently reorganized its business to focus on precisely the kinds of projects that are getting massive infusions of government stimulus cash from the US and Germany, and even more cash from emerging economies such as China. Green technologies, energy and industrial efficiencies, health-care systems -- the checklist matches up nicely with the priority lists. The company even makes high-speed trains, with projects already underway in Russia and China, and that’s another item on the US wish list.
For Siemens and its many competitors, the stimulus programs benefit them indirectly. Their customers are the ones who have the cash or tax incentives in hand to improve their business’s energy efficiency, upgrade aging rail systems, or move to electronic medical record-keeping.
According to a report in the Wall Street Journal, Siemens has received orders worth more than $5 billion from worldwide stimulus programs so far, and it hopes to get more than $19 billion by the end of 2012. Its most recent quarterly earnings, issued in late July, reported record profit up 40% year over year and orders up 22%.
Its current projects include a new wind turbine manufacturing plant in Fort Hamilton, Iowa, that will make products ordered by recipients of a government tax credit for investments in wind projects.
President Barack Obama recently toured the Iowa plant. As Siemens USA CEO Eric Spiegel told CNN: “From our perspective, the president has been pretty good to us.”
Of course, Siemens faces plenty of competition, in the US and internationally, in every one of its businesses that are receiving stimulus money.
For instance, the US stimulus program sets aside $27 billion to reimburse physicians, hospitals, and other health-care professionals for the costs of upgrading to electronic record-keeping. IBM (IBM) and Microsoft (MSFT) are obvious competitors for the hardware, software, and consulting services that will be required to get these systems running. But Dell (DELL) strengthened its hand in this area with its recent purchase of Perot Systems, which has already been awarded contracts in China for similar medical IT services.
Then again, some of these projects might not pan out as planned. California’s plan for high-speed rail service from the Bay Area to Anaheim has received stimulus funding and state bond proceeds. Together they add up to about one-quarter of the projected $42 billion cost, and that may be a low-ball figure. Given the state’s financial crisis, bullet trains aren’t likely to arrive on schedule. In this case, California is likely to emulate North Carolina. It appears that its share of the $8 billion set aside will be used quite properly to buy new rail cars and upgrade rail infrastructure. Ostensibly, this is preparation for high-speed service. But at worst it will keep the old choo-choos on the tracks if the additional public or private investment needed doesn’t materialize.
(Onvia (ONVI), a consulting company to government contractors, is tracking all of the active stimulus spending projects underway across the US -- all 77,589 of them at the current count -- at recovery.org.)
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No positions in stocks mentioned.
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