Even if you only sporadically catch up on the financial news, you'll know the headlines in 2020 have been dominated by stories of booming ASX tech share prices.
And for good reason.
The measures we've taken to mitigate the spread of COVID-19 — working, shopping and socialising from home — have turbocharged the adoption of new technologies. In fact, the experts tell us, developed nations like Australia have embraced 5 years' worth of technology changes in just a matter of months.
Little wonder then that the tech-heavy Nasdaq Composite (NASDAQ: .IXIC) is up 65% since 23 March. And that the S&P/ASX All Technology Index (ASX: XTX) — which tracks 50 of Australia's leading and emerging technology shares — is up an eye-popping 107% since 23 March.
And these gains come despite both indexes retracing some over the past month. The Nasdaq is down 6% from 2 September. And the ASX All Tech index down 4% since 25 August. Though both are again trending higher this past week.
Now despite these strong gains, well-placed tech shares almost certainly will see more share price gains over the mid to long term. And if you don't already own some, you should strongly consider adding some to your portfolio.
But with all the focus on technology companies, many investors have been turning a blind eye towards a group of shares that I believe are well-positioned for strong gains during the recovery trade.
Romano Sala Tenna, portfolio manager at Katana Asset Management, had this to say on the rather lopsided recovery to date (as quoted by the Australian Financial Review):
I'm surprised it hasn't been more widespread to some of the cyclical laggards – some of the REITs, some of the industrials, travel, retail… [W]e are going to see some of these laggards recover. Barring a third wave, that's probably the big trade for next quarter: the recovery trade.
Follow the money trail
Like in most every other developed nation across the world, Australia's government is pulling out all the stops to keep the economy afloat during the global pandemic. And to have it primed for a strong rebound once the coronavirus is vanquished, or at least brought under global control.
Spending on new infrastructure projects is high on governments' lists. The Canadian Government, for example, just promised a new C$10 billion (AU$9.5 billion) infrastructure program. This includes C$2 billion for large-scale, energy-efficient building retrofits.
Balanced budgets be darned.
We'll have to wait until Tuesday 6 October for confirmation on some of the finer details for Australia's new stimulus plans. That's when Prime Minister Scott Morrison will address the National Press Club on the upcoming budget. But between government spending packages and new private investment, there are going to be billions of new dollars flowing into fast tracking Australia's digital economy and billions more flooding into 'shovel ready' infrastructure projects.
While the new funding for digital technologies is sure to offer a tailwind for ASX tech shares, it's the lagging infrastructure shares that I believe deserve your attention today.
Two ASX shares to ride the recovery trade
There are a number of companies, exchange-trade funds (ETFs) and real estate investment trusts (REITs) you can invest in to capture the share price gains they're likely to enjoy on the back of massive new government infrastructure spending and accommodative tax policies.
Two that I believe are particularly well positioned are James Hardie Industries plc (ASX: JHX) and Brickworks Limited (ASX: BKW).
James Hardie develops, manufactures and distributes fibre reinforced cement building products. The company pioneered the modern fibre cement product that today is used throughout the global building industry. Its wide range of products are used across new housing constructions, renovations, manufactured housing and many industrial applications.
The James Hardie share price took a sharp fall on 11 February, from what was then an all-time high. The share price plunged 52% by 19 March. But the rebound has been even more remarkable. Since that low the share price is up 118%, at the time of writing. And year to date, the share price is well into the green, up 21% and trading just below yesterday's new record highs.
With a likely boom coming in residential and commercial construction over the mid term, I believe the James Hardie share price could run much higher from here.
Brickworks finds itself in a similar sweet spot. The company specialises in property, investments, and building products for the residential and commercial markets here in Australia as well as in the United States. It also has a major holding in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), which in turn has a significant stake in Brickworks. Brickworks also owns 50% of an industrial property trust with Goodman Group (ASX: GMG).
The Brickworks share price has been trending higher for decades, hitting an all-time high on 24 January. From there, it plunged 41% through to 22 April before rebounding 59% from that low. While still below its record high, year to date the Brickworks share price is up 4.5% at the time of writing. The company also pays an annualised dividend yield of 3.0%, fully franked.
The Motley Fool's own Scott Phillips has been keen on Brickworks since May 2015, when he first recommended it to members of his Share Advisor service. Since then, the share price is up 78%. Scott again recommended Brickworks shares in May 2019. The share price is up 18% since that second recommendation.
And, in case you're wondering, Scott maintains an active buy recommendation at the current Brickworks share price.
