Power Up Your Profits

We all remember where we were on September 11, 2001. As the attacks were unfolding, I was 10 minutes late for a train that was supposed to deposit me in the basement of the World Trade Center.

But where were you on August 14, 2003?

That afternoon, everything each of us in America takes for granted looked as though it had vanished in a blink.

It wasn’t a terrorist attack. But as it happens, it was the second-largest event of its kind in history.

And it’s an experience that I guarantee will happen again…

That day, the 2003 Northeast blackout impacted 55 million people in eight states, along with Canada’s most-populous province, Ontario. It was something that I experienced personally, working then as a business-news reporter at The Wall Street Journal in New York City. I was one of the roughly 3.6 million souls on the island of Manhattan plunged into darkness on that unnerving day less than two years after 9/11.

The likelihood of a similar event imperiling a major city, a key region or possibly the country is a near certainty. You see, for 15 years now the American Society of Civil Engineers has yet to grade America’s infrastructure above a “D+” on its infrastructure report card. And the North American Electric Reliability Corporation, the umbrella group for the nation’s electrical grid operators, reported nearly 350 major power disturbances in North America in 2011, a 600% increase in a decade.

And savvy investors should see this as one of the brightest investment opportunities in America today. It’s the reason I recommend shares of Quanta Services, (NYSE: PWR), a company that is poised to reap the benefits of the estimated $1.5 trillion that needs to be spent to bring America’s power grid up to modern standards.

Alarming Power Stats

So worrying is the probability of a major power grid failure, that a senior executive at utility giant Southern California Edison told Congress that “the challenges that face our nation’s energy future simply cannot be met by our aging electric grid. The electricity infrastructure delivering power from a variety of generating sources to our homes, businesses and communities is not suitable for today’s needs.”

Meanwhile, the U.S. Department of Energy warns that the country’s power lines are at least 25 years old and 60% of our circuit breakers haven’t been replaced in at least three decades.

These are core components in a system that powers your life … and they have passed their expected service life.

Consider the lowly transformers, those truck-sized metal boxes you see fenced off near power stations with capacitors and high-voltage wires sticking out the top. They’re about 35 years old, on average, and reaching the end of their useful lives. Many are built in Asia, to custom specifications. Building, shipping, installing and testing them can take months, sometimes close to a year. Imagine a situation in which numerous American transformers fail for any number of potential reasons, ranging from Mother Nature to terrorism.

Already, 500,000 Americans lose power every day for at least an hour. Imagine power outages or rolling blackouts that stretch way beyond anyone’s tolerance.

In other words, there is no quick fix to America’s energy grid problems. Today, we are relying on an aging electrical grid that is long overdue for a major overhaul. And that means huge investments. This is why I recommend Quanta Services.

Don’t Leave Your Wealth in the Dark

Quanta Services is a leader in delivering infrastructure solutions to the electric power, natural gas and pipeline industries.

Just this year, the company has won contracts for nearly 500 miles of electric transmission line installation and two solar facilities. Quanta shows growth in its earnings by more than 20% in 2014, yet the shares currently trade at barely 15 times 2014’s projected earnings. That gives us a price/earnings/growth ratio (a PEG ratio) of less than one – meaning, the stock is cheap relative to its growth rate. And with no debt, the company’s balance sheet is solid.

Quanta topped earnings estimates by 17% last quarter, and it still has a $7 billion project backlog to work through. Given the tailwind of America’s infrastructure needs, Quanta is clearly positioned to potentially top earnings projects yet again – which would send shares higher. The stock trades at $27.09 today, and it’s a buy up to $28.50. I have a price target of $35, representing a 30% gain.

With the inevitable rebuilding of America’s infrastructure on the horizon, now is the time to invest in companies that are well-positioned to profit from it.

Until next time, stay Sovereign …

Jeff D. Opdyke