(7-9 minute read)
When you think of a booming stock market, you probably imagine futuristic tech, cutting-edge biotech, and electric vehicle startups. But sometimes, the most powerful trends are happening in the most ordinary places.
Right now, one of the most resilient trends is the strength in essential infrastructure—the "boring" but absolutely critical industries that keep society running. And there's no better poster child for this trend than Stella-Jones Inc. (SJ), one of our top stock picks this week.
Let's explore this market trend and see why SJ is a textbook example of a "Steady Eddie" stock that can anchor your portfolio.
The Trend: Money is Flowing into "Essential" Industries
In an uncertain economic environment (with talk of recessions and high inflation), investors get nervous. They start moving money out of speculative, expensive stocks and into companies with one powerful characteristic: reliable demand, no matter what.
This is the "flight to safety" or "defensive" trade. It focuses on industries where business doesn't just stop when the economy slows down.
Why This Trend is Happening Now:
- Recession Fears: People might stop buying new phones, but they don't stop using electricity or driving on roads.
- Inflation Hedging: Companies that produce physical goods, like lumber, can often pass higher costs onto their customers.
- Predictability: In a volatile market, predictable earnings are like gold dust.
Case Study: Stella-Jones (SJ) - The Company You've Never Heard Of
You might not know the name, but you see their products every day. Stella-Jones is a North American leader in manufacturing pressure-treated wood and steel products for infrastructure markets.
What they make:
- Utility poles and cross-arms
- Railway ties and timbers
- Residential lumber
Sounds boring, right? But let's break down why this business is a fortress.
The "Why": The Unbeatable Investment Thesis for SJ
- Recession-Proof Demand:
- When a storm knocks down power lines, the utility has to replace the poles. This isn't discretionary spending; it's essential maintenance.
- Railway ties wear out and need to be replaced on a continuous cycle to keep goods moving across the continent. The economy can't function without this.
- This creates a revenue stream that is incredibly stable through economic cycles.
- A Beneficiary of Government Spending:
- The US and Canada are in the midst of a multi-year, trillion-dollar push to upgrade aging infrastructure (think the Bipartisan Infrastructure Law).
- This means billions of dollars are being earmarked for the power grid and railway networks—Stella-Jones's two biggest markets.
- They aren't just relying on existing demand; they are positioned for a cyclical upswing driven by public policy.
- A Simple, Profitable Business Model:
- This isn't a complex tech story. They buy raw materials, treat them, and sell them to a dedicated customer base.
- As a leader, they have economies of scale and pricing power.
- This often leads to strong, predictable profit margins and a healthy balance sheet, allowing them to pay a consistent dividend.
SJ vs. A Growth Stock: A Tale of Two Strategies
Let's contrast SJ with a stock like JAMF from our last week's blog:
Stella-Jones (SJ) operates in the Industrial and Materials sector. Its main appeal is Stability & Value. Its revenue comes from predictable, recurring maintenance needs—utilities and railways must constantly repair and replace their infrastructure. This gives it a Lower Risk Profile, as it's a defensive, essential business. It's ideally suited to form the foundation of your portfolio.
On the other hand, Jamf (JAMF) is a Technology company whose appeal is Growth & Potential. It also has predictable, recurring revenue, but through software subscriptions. Its Risk Profile is Moderate, as it's more tied to tech sector sentiment and its ability to hit growth targets. This makes it an ideal candidate for the growth engine of your portfolio.
The success of a company like Stella-Jones teaches us a vital lesson: Great investments aren't always exciting.
Including "boring" stocks in your portfolio serves a crucial purpose:
- They provide ballast. When high-flying tech stocks have a bad week because of an inflation report, your SJ holdings are likely to hold steady or even rise.
- They reduce overall risk. This is the heart of diversification—owning different types of stocks that don't move in the same direction at the same time.
- They generate compound growth. You benefit from both the stock's gradual appreciation and reinvested dividends over time.
While it's fun to chase the next big thing, never underestimate the power of a company that simply does one essential thing, and does it better than anyone else. In the current market, that's a trend worth betting on.
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