Monday, February 2, 2009

Hold Your Horses On The Stimulus

Today more Senate Republicans were in the news saying they wanted an overhaul in the stimulus package. I've been wanting to write about what companies should be able to grow their earnings because of the stimulus plan, and therefore making them good investments. However it's been difficult because everyday some Senator gives a new plan. That is why I want you to hold off on making any investment play off of the stimulus until a bill is actually passed in both houses. 

Why should you wait? You heard it is going to include infrastructure and tax cuts so why can't you go ahead and make investments based on that? I've seen a lot of people telling investors that Caterpillar is going to do really well from the stimulus package. But that may not be the case. You need to look at what TYPE of infrastructure is being spent. For example, Republican Senator Bob Corker said today he wanted to increase infrastructure spending. So... well that is good news for Caterpillar because they will have more business right? No. The increase in infrastructure spending is for the military. Building new jets and tanks will not increase Caterpillar's business. So while you might think an increase in infrastructure spending is good for Caterpillar, it really is not. So do not be fooled into paying a high amount for infrastructure stocks. If an announcement is made that infrastructure spending is going to be increased, investors might send stock prices soaring higher than they should be because they do not realize just how little is being spent on each sector.

The infrastructure spending is beginning to be very widespread, meaning no particular sector is getting enough money to really jump start the companies in it. That doesn't mean that no company will benefit, but that you should wait until more light is shed on what EXACTLY the money is being spent on. Also, if the spending becomes too widespread, invest in smaller cap companies because while a billion dollars might not stimulate a huge company, it could really have an impact on a small cap firm.

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