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​Daniel Cullinane CPA                                   p 848-250-9587                                                                                                                                     

THE ECONOMY

COMPANIES TO BENEFIT FROM THE WALL

​AUGUST NEWSLETTER

CHARTER

​While President Trump has had a very hard time with Congress repealing and replacing Obamacare, for one of the other big campaign promises, the border wall, things look somewhat brighter. In fact, last week the house passed a security bill that included $1.6 billion in funds for 74 miles of the wall. While the wall remains very contentious and controversial, and many Democrats are opposed, it is far different than taking away what many perceive as an entitlement like Obamacare.

While the prototypes for the wall being built in San Diego have been delayed to the winter due to some complaints over the bidding process, the fact of the matter is the wall is underway. Needless to say, there are numerous companies in the United States anxious to be part of the design and construction process, and we screened the Merrill Lynch research database and cross-referenced recent articles on the subject and found five that look like strong candidates, all of which are rated Buy at Merrill Lynch.

Caterpillar

After years of lousy earnings growth, this large cap leader is hitting on all cylinders. Caterpillar Inc. (NYSE: CAT) is the largest manufacturer/marketer of construction equipment worldwide, and it is also a leading manufacturer of diesel engines and turbines for transport and industrial applications.

The company posted very solid second-quarter numbers, and top analysts on Wall Street that cover the company feel that the guidance laid out for the second half of 2017 could prove to be very conservative. Production is ramping up across multiple regions and markets, and the stock could have more room to run.

Shareholders receive a solid 2.75% dividend. The Merrill Lynch price target for the shares is $135, and the Wall Street consensus target is $116.26. The stock closed last Friday at $114.10.

KBR

This old-school construction firm looks like a shoo-in for border wall contracts. KBR Inc. (NYSE: KBR) is a premier global engineering and construction company focusing on the energy sector and government services, with particularly strong resume in the liquefied natural gas (LNG) market, having built a third of the installed global capacity.

KBR operates through three segments: Government Services, Technology & Consulting and Engineering & Construction. With a long footprint over the years in Washington, D.C., and a history of garnering government business, KBR may be one of the companies best suited for a contracts relating to the design and building of the border wall.

KBR shareholders are paid a 2.15% dividend. The Merrill Lynch price objective is $19, while the consensus price target is $18.37. The shares closed Friday at $14.92.

Nucor

This top steel company could do very well if the economy sees a continued solid pickup this year, and steel will be needed for the border wall. Nucor Corp. (NYSE: NUE) is one of North America’s largest steel producers, with almost 27 million tons of finished steel capacity at 23 mini mills throughout the United States. The company’s downstream steel products business includes rebar fabrication, steel joists/deck, cold finished bars, fasteners, building systems and wire mesh. Nucor also has 5 million tons of scrap processing capacity.

While the residential construction market could slow down some in the latter half of 2017 after years of a very torrid pace, most analysts remain positive on nonresidential commercial construction. Nucor has always kept a very conservative balance sheet and is poised for slow but steady growth next year and beyond, especially if a huge infrastructure build-out becomes a reality.

Nucor investors receive a 2.66% dividend. The $73 Merrill Lynch price target compares with the consensus target of $68.89. The stock closed Friday at $57.46.








































AECOM

This company may be less well-known to investors, but it stands a solid shot at border wall contracts. AECOM (NYSE: ACM) is a premier engineering and design firm with leading market positions both in the United States and globally. AECOM focuses on the front-end design and engineering work, project management and operations and maintenance services. Its key end markets include transportation, environmental, facilities, government and energy.

With a market cap of just over $5 billion and fiscal 2016 annual revenue of $17.47 billion, the company is well positioned to handle a large influx of new government projects. AECOM recently merged with rival URS to enhance its focus on the energy and transportation sectors, areas that are sure to see new spending under the new administration, if the president can pass his infrastructure package.

The Merrill Lynch price objective is posted at $41, and the consensus is set at $39.33. The shares closed Friday at $31.58.

Steel Dynamics

This is another steel company that the Merrill Lynch team is very positive on that could obtain border wall business. Steel Dynamics Inc. (NASDAQ: STLD) operates six steel mini-mills in Indiana, Virginia, Mississippi and West Virginia. Production capacity has been nearly 10 million tons, of a total 110 million U.S. capacity.

The company makes flat rolled products, special/merchant bars and structural steel products. Steel Dynamics can process about 7 million tons of ferrous scrap and has a downstream operation that processes finished steel.

Shareholders are paid a 1.76% dividend. Merrill Lynch has a $42 price target, but the consensus target is $43.33. The stock closed Friday at $35.15.

With the slack in the labor market having all but disappeared, it is no wonder Federal Reserve Chairman Janet Yellen is shifting gears on monetary policy, becoming more of a hawk than a dove on interest rates. Over the next 12 months, unemployment rate may fall to 4% or less, below what the Fed considers to be sustainable with the specter of inflation, A more hawkish view from Yellen spells a hike in short term interest rates in Dec, with more increases to come next year, even thoug inflation, wage pressures and economic growth will remain modest. Best guess is two hikes in 2018. Yellen thinks it is better to raise rates sooner than later. She woul ranter not wait until inflation kicks in the then impose sharp increases that could jolt the economy. Note that long term yields are sure to rise more slowly than short term rates until the Fed pushes the federal funds rate to what it considers a more normal 3%

Masayoshi Son, the chairman of Japanese technology goliath SoftBank Group Corp., wants in on the U.S. cable market. And he appears determined to use Charter Communications Inc. to get him there, one way or another.

Son’s initial gambit failed: Charter on Sunday rebuffed his proposal to combine the company with Sprint Corp., which SoftBank controls. Undeterred, the Japanese billionaire is now mustering an offer from SoftBank to buy Charter outright, according to a person with knowledge of his plans. He intends to make the offer this week, the person said, asking not to be identified ahead of a public announcement.

Masayoshi Son

Photographer: Kiyoshi Ota/Bloomberg

Bidding for Charter, which has a market value of $101 billion, would mark the most ambitious target yet for Son, whose deal spree has made SoftBank one of the most debt-laden companies in Japan. While an early bet on Alibaba Group Holding Ltd.has delivered outsized returns, Sprint has lost billions since he bought control in 2013 while the Japanese company’s investments in India have been largely written off.

“Son is going back to his bad old days of wanting to conquer the world, just as we thought he was becoming more sensible,” said Amir Anvarzadeh, head of Japanese equity sales at BGC Partners Inc. in Singapore.“It does sound as if they’re doing anything but de-leveraging. They’re re-leveraging.”

The plan for Charter isn’t complete and could change, the person familiar with the matter said.

Shares of SoftBank fell 2.3 percent in Tokyo, giving the company a market value of $89 billion. The company also has debt of 14.9 trillion yen ($135 billion), making it the second-most indebted non-financial company in Japan, trailing only Toyota Motor Corp.

For Gadfly’s take on Son’s dealmaking, click here

The plan by Son could reignite deal talks that had appeared to be dead late Sunday, when Charter said it wasn’t interested in buying Sprint. The billionaire had previously proposed a deal that would create a new public company to absorb Sprint and Charter and combine them, people familiar with the matter said last week.

“We understand why a deal is attractive for SoftBank, but Charter has no interest in acquiring Sprint,” Charter said in a statement before Bloomberg reported Son’s latest plans.

Son is known for bold decisions and has spoken, without irony, about his 300-year plan for SoftBank and aims to build the world’s most valuable company. His Vision Fund has raised $93 billion for tech investments, winning backing from Saudi Arabia, Abu Dhabi, as well as Apple Inc. and Qualcomm Inc.

Last year, SoftBank paid $32 billion for chipmaker ARM Holdings in a bet on the nascent concept known as the Internet of Things, while he has committed billions to ride-sharing services such as Didi Chuxing in China and Southeast Asia’s Grab.

U.S. cable and wireless carriers have been circling each other as more consumers watch video and access the internet on mobile devices. By combining, companies like Charter and Sprint could offer a full suite of telecommunications services to customers, from home broadband internet to wireless plans, and compete head-to-head with the packages sold by phone giants AT&T Inc. and Verizon Communications Inc.

Since the end of May, Charter and Comcast Corp. had been in exclusive talks with Sprint over possible deals, including one that would allow the cable companies to resell wireless service under their own brands.

The exclusivity ended this week, and Charter has decided against a reselling deal with Sprint, according to another person familiar with the matter, who asked not to be identified discussing private information.

“Overall our view is that Charter likely does not want to sell, but that SoftBank is one of the few companies that could put a bid in big enough to take control,” analysts at JPMorgan Chase & Co., led by Philip Cusick, said in a note. “While we don’t see a deal as very likely, especially given later headlines that Charter is cool to the idea, Masa is never to be counted out as a buyer.”

A combination of Sprint and Charter would put together the fourth-largest U.S. wireless carrier with the No. 2 U.S. cable company. Sprint, based in Overland Park, Kansas, has a market value of almost $33 billion and even more in long-term debt -- putting pressure on Son to make a deal as Sprint’s losses mount and bond maturities approach.

JPMorgan estimates synergies from combining Sprint with Charter at about $2 billion a year.Exclusive insights on technology around the world.

Son has also been considering merging Sprint with T-Mobile US Inc., the third-biggest U.S. wireless carrier. Sprint has argued publicly that a merger with T-Mobile makes sense because it would create a bigger wireless carrier to take on larger competitors AT&T and Verizon. But a surge in the value of Sprint’s wireless spectrum holdings persuaded executives to consider other deals, too, Bloomberg reported in April.

Charter has a separate pact with Comcast that could complicate a deal with Sprint. The cable companies agreed in May to work together on any transaction with a wireless company in the next year. That means if Charter changes its mind and decides to merge with Sprint, Comcast would have a say in the matter.

Charter has long-term debt of more than $63 billion. Its revenue totaled $40.8 billion in the past year.

Cable billionaire John Malone holds a 21 percent stake in Charter through his Liberty Broadband Corp. Son has also met with Malone and Warren Buffett about making potential investments in Sprint, a person familiar with the matter said earlier this month.