E-mail this article Printer-Friendly

A different way to profit from the infrastructure revolution

Infrastructure spending will help many big stocks, says KeyStone’s Small-Cap Stock Report, but investors may find bigger profits in smaller stocks.

We keep coming back to the infrastructure revolution. For a good reason — money is going into it, not coming out.

It is evident that the big spending push in the U.S. and not-quite-as-big push in Canada must benefit some companies.

The question is, how will investors benefit? There are some stocks that are almost automatically tabbed as winners in this race for repairs and restructuring. These are the big engineering and construction firms.

But there are other, less obvious choices for investors. They’re smaller companies, but they have the potential to profit even more than their larger brethren over time.

That is the opinion of the independent research team at KeyStone’s Small-Cap Stock Report. This advisory turns its attention to an area of the infrastructure buildup that is rarely mentioned.

It’s the higher-tech part of the revolution. It comes from the laying of broadband (for superior Internet access) and new power lines. All of this has been promised by the new administration in Washington.

And this advisory promises that two Canadian companies stand to profit from this American initiative.

The broadband bounty

Congress has approved funding “for rolling out broadband to unserved and underserved areas,” says this advisory. A total of $37 billion was proposed for high-tech items such as expanded broadband access.

The advisory is careful to point out that there no specific details yet as to how the $37 billion will be spent.

But it has no hesitation in proposing two stocks that are in line (or on line) to take advantage of this broadband bounty.

One is Calgary’s Axia NetMedia Corporation (TSX-ASX). It offers Real Broadband™ Internet Protocol services. It designs and operates no conflict Open Access Next Generation Networks (OAN NextGen).

Basically, this means making information networks faster and more accessible to more people, no matter where they live. Axia operates the Alberta SuperNet. Among other things, it brings “guaranteed connectivity” to all service providers. This means that your Internet service is just as fast if you live up near Grand Prairie as it is in downtown Calgary.

The company is now developing similar high-speed networks in France. But there is an even bigger picture to look at.

Chosen in Singapore

“Much as railways and roads became critical infrastructure in the previous century, broadband is widely recognized as the foundation for high performing economies this century,” says the advisory.

“Worldwide, from the U.S. to Singapore, governments are recognizing that investments in the availability of broadband are critical to the long-term strength of their economies.”

In fact, Singapore is another place where Axia’s OAN NextGen is in demand. The company has an Asian division headquartered in Singapore. This past September, it was chosen by the country’s Infocomm Authority to provide fibre services for premises across Singapore.

The company is profitable and has a strong balance sheet. The advisory stresses “we do not expect the stimulus money to flow Axia’s way in the next quarter or two.” But it is “well positioned long-term to capitalize on the need for Broadband worldwide, and the potential U.S. push is a significant wildcard.”

The stock opened today at $2.00, about 30¢ above where it was when the advisory’s report was published.

Vegetation control

“Another nugget from the Obama address,” says the advisory, was the promise to lay down “thousands of miles of power lines that can carry new energy to cities and towns across this country.”

You can’t base an investment decision on one promise by one politician, the advisory admits, but energy spending will be a “solid cog” in the U.S. stimulus package.

And another Canadian company that can get a spark from this development is CVTech Group Inc. (TSX-CVT). This firm deals with two kinds of transmission systems.

The first are continuous variation transmission (CVT) systems made for manufacturers of mini-compact cars and recreation and utility vehicles.

The second are electrical transmission and distribution lines. Here, the company offers services for construction and maintenance, including the rather important duty of vegetation control and tree pruning.

The advisory has been pleased with the company’s progress since it first recommended it in June 2007 when it traded at $0.90. It opened today at $1.40. What’s more, CVTech has agreed to buy a North American company that provides electrical services for utility and industrial markets. The company will remain nameless until the deal closes.

The advisory makes this stock a speculative buy, keeping a firm eye on its chance to carve itself a portion of the infrastructure pie.

Yes, there are bigger names in the infrastructure game, the advisory admits. It cites SNC Lavalin (TSX-SNC), the Canadian engineering giant with a huge international backlog, as an almost certain winner.

“But this is no secret and in the financial world, you do not get rich investing based on something the market already knows — it is factored into the price.”

Dig a little deeper, the advisory adds, and you can come up with smaller firms that may generate even bigger gains in the long run. Especially if you dig in places where others aren’t even looking.