Infrastructure stocks were thrown out the window in March 2020. Not because they weren’t quality companies, but because prospects looked bleak for their success.
As the U.S. and global economy began to shut down — literally — it put spending on the back-burner. Construction sites, commercial projects and more slowed or came to a stop. Even still, there is a concern about what level of economic activity we will ultimately rebound to.
Should the economy stall out or even contract after the sharp recovery we’ve seen from the novel coronavirus, this will negatively impact the infrastructure space. However, there is a positive and for once, it’s the government.
The government — whether Republican or Democrat — is generally supportive of infrastructure deals. The reason? It’s usually a win-win.
While no one likes to deal with construction sites, the end result is usually a smoother and more efficient flow of traffic; it benefits cities or areas that have an overhaul. It can create more buzz and increase foot traffic too, which is good for business. There are a ton of different ways to boost infrastructure spending that can benefit lawmakers in multiple ways.
But at the end of the day, it’s a win-win because the end user usually gets a good product, while the government is pumping money into the economy. Heavy equipment producers, lease companies, construction companies and all sorts of employees see the cash roll in.
It’s a true trickle-down effect and it’s why, regardless of the election outcome, that this group could win.
Here are seven infrastructure stocks to consider owning:
- Caterpillar (NYSE:CAT)
- Cummins (NYSE:CMI)
- United Rentals (NYSE:URI)
- U.S. Concrete (NASDAQ:USCR)
- American Tower (NYSE:AMT)
- Blackstone (NYSE:BX)
- Fluor (NYSE:FLR)
Infrastructure Stocks: Caterpillar (CAT)
One of the first names that comes to mind when I think of infrastructure is Caterpillar. The premiere heavy equipment manufacturer is a global operator. At times, that is a positive, and in other situations, it can be a liability.
Be it as it may though, one would wager that Caterpillar stock should do well if Congress and the White House — regardless of who controls the former and who occupies the latter — put together an infrastructure bill.
The company’s recent sales figures haven’t been great. Caterpillar reports its rolling three-month retail sales results. The most recent reading in mid-September showed that total machine sales were down about 20% for the three months ending in August. That was its ninth straight decline and follows similar drops in June and July.
Despite the uncertainty last quarter, the company delivered a top- and bottom-line beat and the stock has recovered from its coronavirus decline. That’s as investors shift their focus away from the past and focus on the future.
An infrastructure bill would go a long way to boosting Caterpillar’s business — and it wouldn’t be just for a quarter or two.
Unlike Caterpillar, Cummins is not the first name that comes to mind. However, this is a solid play on an increase in infrastructure spending.
Cummins designs and manufactures diesel and natural gas engines. These engines range from big rigs and semi-trucks to powerful pickup trucks. Whether it’s a shipping firm, contractor or a company hauling basic materials, demand is usually high for these vehicles when infrastructure work is underway.
The stock’s price action can be construed in two different ways. On the one hand, shares have rallied massively from the lows, up about 100%. It’s hard to “chase” when a stock has rallied so far, so fast. But it’s better than trying to catch a falling knife for a company with deteriorating financials.
Speaking of financials, they are doing anything but deteriorating for Cummins. The company has just $4.3 billion in total debt. Among its $9.8 billion in current assets, more than $2 billion is in cash and cash equivalents. Total assets of $20.3 billion are almost double total liabilities.
Infrastructure Stocks: United Rentals (URI)
When a construction crew undertakes a big project, they inevitably need to rent equipment. Enter United Rentals.
Like others on this list, United Rentals has been explosive. Even though shares are down 10% from the highs in August, the stock has almost tripled from the March lows.
The company consists mainly of two businesses: general rentals and trench, power and fluid solutions.
The first unit rents out construction and industrial equipment, tools and services for companies. It’s a great way for contractors to get the proper general equipment for the job, thus getting the project done safely and efficiently. URI also steps up with its trench, power and fluid rentals, too. This group includes specialty products and services, and can include everything from trench shields to construction lasers, HVAC and generators, among others.
No significant construction project takes place without United Rentals playing a role. If the U.S. does undergo a massive (and necessary) infrastructure infusion, this company will benefit. Perhaps that’s why its stock has done so well.
U.S. Concrete (USCR)
Unlike the others on this list, U.S. Concrete has not been doing all that well since the pandemic hit. That’s not to say it hasn’t done well from the lows, though.
Shares have risen almost 300% from the March lows. However, the stock is still down more than 50% from the highs made in October 2019. While USCR isn’t exactly a falling knife, it hasn’t recovered its losses like the other stocks listed above. That could represent real value for investors should talks of an infrastructure bill pick up speed. Why? Because you can’t have a $1 trillion-plus infrastructure plan without concrete!
The company just priced $400 million worth of senior notes, while management was even in there buying the dip in March. In short, while this name may not be on the top of the list for growth prospects, there has clearly been value in the name.
The $400 million raise should ease any concerns about liquidity, not that there was much to be concerned about with current debt of just $32.5 million.
Infrastructure is likely to be a key focus point later this year or in 2021. That’s regardless of whether President Donald Trump or former Vice President Joe Biden occupies the White House. Both parties will look to get the U.S. economy back to full strength and an infrastructure bill is one of the measures that can help get it done.
Infrastructure Stocks: American Tower (AMT)
Looking for some diversity in the list? How about American Tower.
When investors think of infrastructure, they tend to think of highways, bridges and transportation. Well don’t forget the transportation of data. That’s where American Tower comes in.
Look, an infrastructure bill is an effort to put Americans back to work. That includes upgrading the country’s cell towers, too. When it comes to towers, American Tower — as is in the name — is a dominant force. With a $107 billion market capitalization, this is no small enterprise. The company pays out a near-2% yield, which is about three times more than the 10-year Treasury yield at the moment.
Plus, with a number of companies pushing toward 5G smartphone offerings later this year and into next year, demand will be there. As such, investors can expect American Tower to answer the call.
Blackstone has exposure to real estate, private equity and infrastructure, among other things. Like American Tower, it may not be investors’ first thought among infrastructure stocks. However, it will benefit if and when this area is finally addressed.
As Congress drags its feet and continually finds a way to put the bill on the back burner, Blackstone keeps closing infrastructure deals.
Here’s both some promise and some disappointment. A few years ago, as infrastructure talks were heating up, Blackstone announced an ambitious plan for $100 billion in infrastructure investments. That was to be led with a $40 billion infrastructure fund.
Unfortunately, things haven’t really played out as well as hoped. That’s left investors wondering what to make of Blackstone. However, it has also showed the company’s willingness to play a part in a massive potential bill.
Still kicking out a 3.8% dividend yield and pretty much standing at the ready, I would be hesitant to ignore this name. When its infrastructure plans were announced, Blackstone stock ripped higher. That leads me to believe it can do so again when infrastructure talks pick up steam.
Infrastructure Stocks: Fluor (FLR)
Is Fluor too controversial for this list? No, but it is worth noting a caveat here. In late September, the company reported earnings, badly missing on top- and bottom-line expectations. While hammered from a horrendously rare quarter due to the coronavirus, Fluor reported a loss as revenue came in far below expectations.
Fluor is an “engineering, procurement, construction (EPC) and maintenance company, providing innovative EPC services to government and private-sector clients in diverse industries.”
So it too will be in on any big infrastructure plans from the government. However, it also has a lot of exposure to private companies, global operations and the energy sector. Unfortunately, many of these businesses and industries are under extreme pressure at the moment.
That pressure was reflected in the most recent earnings report, although the stock actually rallied on the day it reported.
Still, investors may find this one a riskier bet on infrastructure spending and may prefer to wait until there is more momentum in those discussions. That may very well come after the elections, but it’s certainly one to keep an eye on.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.