One of the biggest talking and policy points of President-elect Donald Trump’s campaign has been America’s crumbling infrastructure. According to the American Society of Civil Engineers, America’s defunct roadways, bridges, ports, water systems and other critical pieces of infrastructure will require a whopping $3.3 trillion over the next decade to fix.
For Trump, this poor economic network is seen as major reason why America isn’t currently great or being all it can be. To that end, the President-elect has announced plans for a $550 billion building binge designed to fix our defunct infrastructure.
While the plan is scant on details — including how to pay for it — if enacted, it will light a long-term fire under various suppliers of steel, copper and other materials as well as the firms designing and building these massive projects. Infrastructure stocks could be a hot ticket once again. The caveat is that not all firms dubbed as “infrastructure stocks” are going to be winners. Selection is key here.
With that in mind, here are seven infrastructure stocks that will be big winners.
Infrastructure Stocks to Buy Under Trump: Aecom (ACM)
In order to build a road, bridge or pipeline, first you have to design it. So the infrastructure stocks that do that planning should be investor’s first stop. And that’s were Aecom (NYSE:ACM) comes in. Aecom is an architecture and engineering design services firm.
Aecom will plan a major infrastructure project and then run the contracting and construction of that project. Thanks to its merger with rival URS a few years ago, ACM focuses its attention on the transportation and the energy sector. That means it services projects such as highways, airports, bridges, wastewater facilities and power transmission. Exactly all the kinds of things Trump wants to build. This should have plenty of future revenues coming to Aecom.
Not that ACM needs any help there.
For all of fiscal 2016, Aecom delivered its second consecutive year of double-digit growth in construction. Meanwhile, its backlog continues to grow steadily as it continues to be selected as the firm of choice for major projects. Right now, ACM’s backlog of work sits at $42 billion worth of projects — a 4% increase over last reported quarter.
In the end, when it comes to infrastructure stocks that do the designing and construction, ACM should be you top choice for Trump’s plan.
Infrastructure Stocks to Buy Under Trump: United States Steel Corporation (X)
It stands to reason that building a record number of bridges, roadways and other major structures will require a lot of materials. And that includes a lot of steel. But not just any steel. Under Donald Trump’s plan, that means American steel. Which is why United States Steel Corporation (NYSE:X) could be one of the best infrastructure stocks to buy.
The steel maker has suffered over the last few years as prices for various steel products have slumped amid a glut of cheap Chinese exports. However, recent tariffs and other protective measures seem to be working as X recently returned to profitability after years of floundering. And considering Trump’s stance on foreign trade deals, those protective measures could get stronger under his reign.
With that scenario, U.S. Steel will continue to provide plenty of needed products to the construction and energy industry. That includes products used in bridges, roadways and trusses.
Despite its triple digit run-up this year, X is one of the best infrastructure stocks to buy under Trump’s continued plans.
Infrastructure Stocks to Buy Under Trump: Vulcan Materials Company (VMC)
If steel is the sexy part of infrastructure materials, then construction aggregate is the boring part. But these bits of crushed limestone, gravel and sand are vital components across a variety of projects. New bridges, concrete structures, roadways and water treatment facilities all require massive amounts of these materials.
And when it comes to aggregate infrastructure stocks, Vulcan Materials Company (NYSE:VMC) is the go-to name.
VMC is the largest provider of crushed stone, sand and gravel in the nation, and is one heck of a concrete producer. Its large size gives it plenty of advantages over smaller rivals. VMC estimates that 75% of the population growth in the U.S. is projected to occur in Vulcan-served states. That gives the rock provider plenty of power under Trump’s plan. Pretty much anywhere there is going to be a major project, VMC has an operation.
And with Trump’s plan providing a back-drop, VMC could see a real return to profitability, free cash flows and dividend increases.
Infrastructure Stocks to Buy Under Trump: United Rentals, Inc. (URI)
Not everything under Donald Trumps’ plan is going be newly built. Policy experts predict that a lot of spending will be going towards bridge maintenance, airport and utility work. And that plays right into United Rentals, Inc.‘s (NYSE:URI) alley.
Through its network of nearly 900 locations, URI is the largest equipment rental company in the world. Need a 30-ft articulating boom lift? What about a concrete planer or skid loader? United Rentals has you covered. And while URI does rent to weekend DYI warriors, the vast bulk of its clients are municipalities, utilities, industrial and construction customers. For many of these clients, its often cheaper just to rent something than to buy it, store it and only use it a few times a year. For areas like bridge maintenance, using URI is pretty much the only way to go.
That fact has URI realizing steady revenues from its core client base. Perhaps even better is that the bulk of its operating spend has come from strong cash flows. URI is a pretty lean machine when it comes to debt. That leaves plenty for room for expansion under Trump’s infrastructure plan.
In the end, the spending plan could be a major windfall for United Rentals.
Infrastructure Stocks to Buy Under Trump: Caterpillar Inc. (CAT)
You can’t talk about infrastructure stocks without talking about heavy equipment builder Caterpillar Inc. (NYSE:CAT). As the world’s leading maker of bulldozers, dump trucks and everything a four-year old would want to play with in their sand box, CAT is going to benefit from higher multi-year infrastructure spending here in the U.S.
And it couldn’t come a moment too soon.
Lately, CAT has been suffering from a slowdown, as Beijing has cooled off its construction activity considerably. That has hurt CAT’s bottom line over the last year or so. Moreover, Caterpillar has had to cut jobs, reduce costs and “kick the can” until construction spending picks up. Well, it may just get that if Donald Trump’s plan goes through.
Last quarter, CAT North American revenues tanked by 20%. With Trump’s plan on the table, that loss in revenues could mark the bottom for Caterpillar. Meanwhile, its cost cutting and control efforts will help boost profitability when spending returns.
Infrastructure Stocks to Buy Under Trump: Manitowoc Company Inc (MTW)
If Caterpillar was beaten down because of falling Chinese construction spending, then Manitowoc Company Inc (NYSE:MTW) was bombed out and depleted. That’s because MTW doesn’t have the breath of products that CAT does. In fact, Manitowoc only does one — namely, cranes.
But those cranes are some of the biggest on the planet. The kind you need to build high rises, bridges and other massive pieces of infrastructure. If Donald Trump is successful at pushing that huge spending package through congress, then MTW will get the nod for increased crane sales.
And it needs it. MTW is currently undergoing a turnaround, just like CAT. But because of its smaller size and specialized nature, that turnaround isn’t going so well since China cut its spending. Earnings have been quite poor at MTW over the last couple of quarters and the latest quarter was a loss.
But at $5 per share, Manitowoc could be a decent lotto ticket for investors looking to score big on the Trump infrastructure plan.
Infrastructure Stocks to Buy Under Trump: PowerShares Dynamic Building & Construction Portfolio (PKB)
Investors looking for a broad take on infrastructure stocks may inclined to buy an exchange-traded fund like the iShares S&P Global Infrastructure Index (NYSEARCA:IGF). However, IGF has nothing to do with a build out, rather it owns firms that own toll roads, pipelines and ports. These firms aren’t going benefit from the build out.
The real winner ETF could be the often ignored PowerShares Dynamic Building & Construction Portfolio (NYSEARCA:PKB).
PKB tracks a portfolio of stocks that conduct construction and engineering services for building residential, commercial or industrial buildings as well as working on large-scale infrastructure projects, such as highways, tunnels, bridges, dams, power lines and airports. All the stuff that will see rising spending under Donald Trump’s proposal.
As a smart beta fund, PKB screens for various fundamentals like price momentum, earnings quality, management action and value. This creates a portfolio of 30 stocks that can profit over the long haul. It has also boosted returns: Over the last five years, PKB has returned 16% annually.
Expenses for the ETF run at just 0.63%, or $63 per $10,000 invested.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.