Before you invest in any new ASX shares, it pays to keep an eye on the money.
Not just the past year’s revenue and cash burn of the shares in question. Though you should certainly be well-informed on those.
But as you’re investing for the future, you need to know if the size of the pie your potential share purchase is operating in is growing, shrinking, or stagnant.
If it operates in a shrinking or flat market then it better be a dominant, nimble player. One that’s likely to steal market share from its competitors and adjust its business model as required.
Those types of well-managed companies do exist. But they operate against some hefty headwinds.
Which is why I prefer to focus on shares operating in growing markets.
No, we’re not talking about ASX tech shares today. Not because most tech share prices have been falling the past few weeks. While they have been, that can be seen as a broader buying opportunity.
But specifically, for today’s topic, we’re talking about companies operating in markets that are about to be showered with government stimulus money.
Australia’s ‘New Deal’
You’re likely familiar with the ‘New Deal’. It was actually a series of deals ushered in under the stewardship of former United States president Franklin D Roosevelt from 1933 to 1939 to lift the US out of the Great Depression.
The massive fiscal spending program got its name from Roosevelt’s acceptance speech for the 1932 Democratic presidential nomination. At the time he said, “I pledge myself to a new deal for the American people. This is more than a political campaign. It is a call to arms.”
And what a call to arms it was.
As part of the New Deal, the administration spent billions of dollars to help private companies build roads, bridges, and public buildings, among others.
The combined programs employed millions of Americans who’d been out of a job as the unemployment rate topped 20%. And it was a welcome boon to the private industry on the receiving end of the government’s cash splash.
Today Australia, and indeed most of the developed world, finds itself battling recession and depression for a different reason. The coronavirus pandemic, and the social distancing and lockdown measures put into place to help keep it in check.
But the way out of today’s deep recession would sound very familiar to Roosevelt.
Government spending. With a likely strong focus on infrastructure.
As the Australian Financial Review reports:
The states are set to receive billions extra in infrastructure funding on the proviso they use it or lose it in the October 6 budget, which will front end spending to drive the economic recovery from the coronavirus…
Further allocations of infrastructure funds will hinge on whether the initial amount has been spent or allocated. The idea is to encourage the states to spend as much as possible as quickly as possible on projects that will create jobs and boost productivity.
Indeed, Treasurer Josh Frydenberg said, “It’s fair to say that when we are providing support to the states, or to various industries, we want that money to be spent as quickly as possible.”
We’ve never had anyone approach us with funding, either in our personal or business life, and explain that if we wanted more, we’d best spend the initial cash splash fast. But we can confidently say we’d do our best to comply. And we believe the states will too.
Which brings us to the ASX shares that are well-positioned to benefit.
ASX infrastructure shares to tap into big spending budget
The precise level of government spending on infrastructure won’t be revealed until the October 6 budget. Rumour has it, the states are looking at more than $10 billion, so long as they’re prepared to spend it fast.
A lot of shares should benefit from this. But some will gain more than others.
Transurban Group (ASX: TCL) is one share that could enjoy strong growth over the year ahead. Transurban not only operates toll roads in Australia, Canada and the US, it is also a major developer of new roadways. And with the government’s renewed focus on infrastructure spending, you can bet road construction will see a lot of new funding and interest flooding in.
After plummeting 39% during the February and March viral market rout, Transurban’s share price remains down 7% year-to-date. But that could be a different story by Christmas time.
The second share that could do very well from Australia’s New Deal budget is Adbri Ltd (ASX: ABC).
Adelaide Brighton supplies a range of products to the construction and infrastructure industries throughout Australia. Its primary focus is producing and distributing cement and concrete products. And with multi-billion infrastructure projects set to launch across the country, Adelaide Brighton’s share price outlook is bright indeed.
Having slumped 54% in the first months of 2020, Adelaide Brighton’s share price is currently down 20% since 2 January.
Both Transurban and Adelaide Brighton make up part of the S&P/ASX 200 Index (ASX: XJO).