When then-Senator Obama delivered his address on American recovery and reinvestment, a prevalent theme was the retrofitting of America's infrastructure for the 21st century. If now-President Obama can follow through with the stances upon which he campaigned -- helping small businesses, bolstering broadband, and subsidizing clean energy projects -- it's clear that certain companies will benefit from stimulus spending.
For the sake of argument, let's assume that the stimulus money won't end up getting squandered on pet projects like honeybee insurance or chauffeur services for government employees. Further, let's also assume that it will succeed in jumpstarting spending on industrial projects like the rebuilding of roads and highways, the expansion of the broadband grid, and the development of clean-energy alternatives.
I believe that a key component of this stimulus package is making sure that any spending will specifically (directly or indirectly) benefit small-cap companies. The idea here is that even if certain firms don't directly receive stimulus money, if larger competitors do get such payments, they'll be more inclined to make certain strategic acquisitions in order to become more vertically integrated, create synergies, or simply expand market share.
Moreover, with all of the recent banter about small businesses being the heart of the American economy, it wouldn't surprise me if federal funds fell directly into the hands of certain small-caps.
Let's go down the list of categories of proposed spending.
Repairing crumbling roads and bridges
I'm not saying that we should immediately go out and invest heavily in heavy civil construction contractors on a whim without any further research. But a company like Granite Construction
A longtime favorite of mine, Caterpillar
Expanding broadband lines
What President Eisenhower did for the Interstate Highway System, President Obama would like to do for the Information Superhighway. This task obviously has huge implications for broadband service providers like Comcast
That's why I like companies like EMCOR Group
Doubling production of clean-energy alternatives
No one expects America to quit using oil cold turkey, but efforts to wean us away from current consumption levels could be dramatic, so let's turn our attention to viable alternatives. Natural gas is an obvious choice here, but instead of focusing on one commodity, we can hedge our bets by determining which suppliers should do well as a result of the shift toward cleaner energy -- regardless of what's being burned.
For a long time, some investors have been waiting for a turning point in Capstone Turbine's
Maybe a safer bet would be Woodward Governor, which makes electrical power systems essential for optimizing turbine output. Woodward and Capstone both have ongoing business relationships with United Technologies
What's yet to come
Among the challenges facing our country in the years ahead, modernizing our infrastructure with environmentally friendly technologies is no small task. But it's not the only thing on the agenda, as other possible projects include digitizing medical records, reforming health care and Social Security, and restructuring the financial system.
Although there's no guarantee that other companies won't take the lion's share of the government's stimulus money, it wouldn't take a huge amount for many of these small caps to soar. By going beyond the obvious large-cap plays, you might get in early on a winner. So if you're a small-cap equity investor, I hope you have a few ideas to help get you moving in the right direction.
Fool contributor Chris Jones owns shares of Caterpillar, but has neither long nor short positions involving any other company mentioned in this article. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool's disclosure policy isn't afraid to reach across the aisle.