With the Senate about to go nuclear as Republicans change the Senate rules so they can avoid a Democratic filibuster and send Neil Gorsuch to the Supreme Court, any small chance that Democrats would work with Republicans to pass some version of President Trump’s $1 trillion infrastructure spending plan has gone from slim to none. Think Democrats will have any inclination to vote with Trump after seeing Republicans stonewall President Obama’s nominee for the court and then ram Gorsuch down their throats? And Trump needs Democratic votes because substantial numbers of the members of his own party in Congress will vote against infrastructure spending.
And without that infrastructure package, I don’t see the extra revenue going to construction materials and equipment companies needed to justify a gain from current valuations for stocks such as Vulcan Materials (VMC). I added Vulcan Materials to my Jubak Picks portfolio on December 5, 2016 at $127.24 as my second Trump pick. The shares closed at $119.25 today, April 4, down 6.28% from my buy price. I’ll be selling the stock out of my online portfolios tomorrow.
Here’s the problem for Vulcan Materials and other infrastructure stocks in a nutshell. Wall Street analysts see revenue at Vulcan Materials growing 6% or so in 2017 as volumes and prices rise. That increase–and more–is baked into the stock. Without the extra volumes that would come from an infrastructure package, there’s no way that Vulcan will see revenue and earnings growth above that 6% forecast that’s necessary to justify the current forward multiple on the stock. Vulcan Materials closed today at 29.81 times forward projected earnings per share.
In a less nervous market, I’d be tempted to hold onto these shares just on the very slim chance that an infrastructure spending package will somehow get through Congress. But in a market currently stalled and looking for direction, I find the temptation easy to resist.