Prior to the U.S. presidential election, both presidential candidates debated their differences as well as potential approaches to fiscal and health measures. However, one common point stood out in their policy views: President Donald Trump and now President-elect Joe Biden both said they would spend on infrastructure projects across the country. Therefore, today, we will discuss three infrastructure stocks building to the upside.
Recent research published by the Levy Economics Institute of Bard College, Annandale-on-Hudson, studied “comprehensive Neo-Schumpeterian economics” (CNSE) and looked at the impact of innovation on economic development. The authors highlighted that, according to CNSE, “the state provides capital investment (infrastructure) as a prerequisite for economic development.”
Given the economic impact of the pandemic, both the U.S. and other countries will possibly start spending more money on national infrastructure to up economic growth as well as employment levels.
In 2021, two areas may benefit from the Biden administration: infrastructure spending and clean energy. There will likely be increased spending on building highways, tunnels, bridges, and other transportation schemes.
We may see politicians reach across the aisle for higher levels of federal spending on infrastructure projects. Meanwhile, individual states could also dedicate money to similar ventures to help with economic recovery efforts.
When looking at infrastructure firms, investors can choose from owners, such as railroads and utilities, or enablers, such as materials and construction companies. The strength of a firm’s assets and management, and a stock’s growth prospects, financial metrics and valuation levels are significant points that deserve due diligence.
In addition to increased spending by governments, lower interest rates worldwide could help increase revenues in the sector. These developments will support the share prices of infrastructure companies.
With that said, here are three infrastructure stocks and funds that investors should consider for the final stretch of the year:
- FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEARCA:NFRA)
- SPDR S&P Kensho Intelligent Structures ETF (NYSEARCA:SIMS)
- United Rentals (NYSE:URI)
Infrastructure Stocks: FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA)
52-week range: $37.25 – $56.06
Dividend yield: 2.22%
Expense ratio: 0.47%, or $47 per $10,000 invested annually
Our first discussion centers around an exchange-traded fund (ETF) that provides exposure to both U.S. and global infrastructure companies. Fund managers focus on businesses that derive at least half of their revenues from five infrastructure super-sectors, i.e., energy, utilities, communications, transportation and government outsourcing (such as hospitals, post offices or correctional facilities). The fund started trading in the second half of 2013.
NFRA, which has 218 holdings, tracks the STOXX Global Broad Infrastructure Index. The top 10 firms constitute about a third of net assets of $2.08 billion. Around 40% of the companies come from the U.S., followed by Canada (15.27%), Japan (10.45%), Australia (5.08%), and Spain (4.85%), among others.
Year-to-date, NFRA is down about 1.15%. As global population increases, countries will be updating their aging infrastructure to make them ready for the digital age and smart cities.
Therefore, the fund deserves to be on your radar. In addition to benefiting from increased U.S. government spending, NFRA could also act as a proxy to the potential economic recovery worldwide.
SPDR S&P Kensho Intelligent Structures ETF (SIMS)
52-week range: $19.61 – $38.10
Dividend yield: 1.13%
Expense ratio: 0.45%
My second choice is also an ETF that focuses on intelligent infrastructure, such as areas of smart building infrastructure, smart power grids, intelligent transportation infrastructure and intelligent water infrastructure.
The SPDR S&P Kensho Intelligent Structures ETF provides exposure to U.S. businesses driving the innovation behind intelligent infrastructure. The fund started trading in December 2017.
SIMS, which has 45 holdings, follows the S&P Kensho Intelligent Infrastructure Index. The top 10 firms constitute more than 35% of net assets of $9 million.
Florida-based manufacturer of heating, ventilating and air conditioning (HVAC) systems Carrier Global (NYSE:CARR), San Jose, California-based provider of solid oxide fuel-cell technology Bloom Energy (NYSE:BE) and Mountain View, California-headquartered provider of residential security solutions Resideo Technologies (NYSE:REZI) are among the firms at the top of the list in the fund.
Infrastructure could initially sound like a somewhat dull sector, but not for investors in SIMS. Since the start of the year, SIMS is up more than 14% and has recently hit an all-time high.
52-week range: $58.85 – $223.86
Stamford, Connecticut-based United Rentals is my final pick for today. With a market capitalization of $16 billion and over 19,000 employees, it is the largest equipment-rental company worldwide.
URI’s 2019 revenues were more than $9.35 billion. The group operates a network of almost 1,200 rental locations in the U.S. and Canada.
In late October, it released Q3 financial results. Total revenue came to $2.187 billion. Adjusted EPS was $5.40. Management was pleased with the metrics and raised its full-year guidance.
Metrics from DataM Intelligence suggest, “The Global Building Materials Market is expected to grow at a CAGR is 4.76% during the forecasting period (2020-2027).” Such growth would benefit URI and its peers, such as Ashtead (OTCMKTS:ASHTY).
Year-to-date, United Rentals stock is up more than 32% and hit an all-time high earlier in November. Moreover, its forward P/E and P/S ratios stand at 12.27 and 1.75, respectively. Long-term investors may regard any short-term profit-taking as an opportunity to buy into URI shares. The business could potentially benefit from stimulus measures in the new year, making it a perfect pick to round out my list of top infrastructure stocks.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.