Which Stocks Win From A Wall With Mexico?
[Mexican border fence near Fundo Legal, Heroica Nogales, Sonora by GothEric, Flickr]
By Mark Melin
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Despite what they consider the “ludicrous” nature of presumed Republican Presidential nominee Donald Trump’s proposal for building a wall, the analysts at Bernstein have figured out the investing angle on the activity. After noting the logistical hurdles which don’t just rival the Great Wall of China – but in some respects exceed it in foundational complexity – the Bernstein analysis note investment winners. Interestingly, Trump just might be in a position to benefit companies based in Mexico. But what the report didn’t discuss is perhaps its most interesting revelation relative to the 2016 political season. Did Bernstein unwittingly create an effective Trump political success indicator based on the stock prices of those firms who might benefit from building The Great Wall of Trump?
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The Great Wall of Trump has shifting logistical challenges that could make it a modern miracle
Building a Great Wall of Trump could be an accomplishment rivaling a 13,173-mile milestone in China. The problem with comparing the Trump Wall to a construction accomplishment that took almost centuries to complete is the point in time in which the task was completed.
Trump, if elected and he actually lives up to his campaign promise, will have the advantage of modern construction techniques. Thus, to compare the nature of the physical accomplishment of building the Great Wall of China is less than relevant. Not only is the task easier today, but the Trump wall may only cover 1,989 miles along the border of Mexico, making this the less than great wall of Trump.
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The Bernstein report, however, noted that the accomplishment will nonetheless be significant. Perhaps the most significant barrier to success is the diverse terrain.
Building a 40-foot-high concrete wall sounds easy, until you realize that much of the border is comprised of moving sand dunes. In Southern California a “floating fence” was required to adjust to the natural movements of the terrain. Such a floating structure might be easier to tunnel under, depending on the funneling methodology and time frame. At the time over $7 billion was spent covering 653 miles of border fencing that the government began building following the 9/11 attacks. Trump has estimated a cost near $10 billion, but Bernstein points to what it considers more real estimates near the $15 billion to $25 billion region.
Existing walls in the region cost $2.8 million to $3.9 million per mile, the US Government Accounting Office has stated. Bernstein notes this is a generous estimate, as it is only for the easy construction stretches.
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The problem is terrain. What isn’t in sand is in either encased in mountains, particularly along the New Mexico border, or running along water, which involves challenging flood plains management issues. A wall would require ripping into previously protected wildlife and wetlands areas and acquiring land from ranchers who might fight the sale of their land to the Trump wall.
Building the Great Wall of Trump will be complex. And in complexity, there is often opportunity.
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From an investment standpoint, the Trump wall could be a boondoggle for US construction-related firms – and even those in Mexico.
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Bernstein estimates the construction of the Great Wall of Trump could add 1% to US cement demand, which would likely start to impact supply and demand near 2018 at the earliest. From an investment standpoint, Bernstein notes this could translate into benefits for pure-plays such as CalPortland, a difficult to invest in private company, and Cemex, a Mexican concern. Less direct plays might include Martin Marietta and Vulcan.
What the report didn’t really flush out is how these stocks might be a bellwether for Trumps political potential. Cemex, for its part, appears to have followed a consistent recent pricing pattern with the S&P 500 – a steep drop off amid Brexit panic and then a recovery and move to new highs.
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Martin Marietta is a little more interesting. Like most stocks, it bottomed on February 11 but then as the reality of a Trump presidency advanced it moved higher, breaking year to date highs on May 6 and continuing to climb. The stock started its decent at the end of 2015, near the time of the Fed interest rate hike and clear uncertainty over a potential Trump victory. During the most recent Brexit market panic and recovery, the stock was down only slightly. Brexit at the time was viewed as a positive for Trump, yet another sign that the masses are fed up with establishment elites. While the Bernstein report didn’t note it, Martin Marietta could actually play into three trump themes: building a great wall, engaging in fiscal stimulus through infrastructure spending, and helping to make the US military great again. Not only does it play into Trump themes, but its stock price pattern has followed success with Trump.
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Martin Marietta perhaps checks most of the boxes for a Trump proxy – and it is currently flying high.
