Eventually, once Donald Trump finally concedes he lost the election, Joe Biden and his transition team can get to work implementing an infrastructure plan that would see the federal government invest $1.3 trillion over the next decade. It’s a plan that will help infrastructure stocks across this country.
Now before you get all excited that the country’s crumbling infrastructure is going to get a facelift, Donald Trump supposedly had a plan. He wanted to spend $1 trillion on infrastructure during his presidency.
Unfortunately, for America, he was more concerned about giving billionaires tax breaks than fixing an infrastructure that once was the envy of the world.
While Joe Biden appears to have a lot more substance than the current person in the White House, the Republican-controlled Senate will almost surely block any “New Deal” type of legislative initiative.
Needless to say, there’s no sure thing when it comes to infrastructure.
Therefore, if you’re looking for infrastructure stocks to buy, you might want to bet on those that will do well with or without an infrastructure plan. Here are seven stocks to buy that ought to win regardless of who’s in office over the next decade:
- American Water Works (NYSE:AWK)
- Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B)
- CenterPoint Energy (NYSE:CNP)
- NextEra Energy (NYSE:NEE)
- NV5 Global (NASDAQ:NVEE)
- Terex (NYSE:TEX)
- Valmont Industries (NYSE:VMI)
Infrastructure Stocks to Buy: American Water Works (AWK)
The water utility reported its third-quarter results on Nov. 4. They were better than analyst expectations, delivering earnings per share of $1.46, 8 cents higher than the consensus. It was also 13 cents higher than a year earlier.
As a result of its strong Q3 2020 earnings, American Water Works’ management increased its 2020 earnings guidance to a midpoint of $3.90, 6 cents higher than its previous guidance for the year.
In the first nine months of fiscal 2020, the company invested $1.38 billion on its infrastructure and planned to spend an additional $520 million in the fourth quarter for a total of $1.9 billion in its fiscal year.
InvestorPlace’s Muslim Farooque recently recommended AWK stock as one of three utilities investors could count on. He especially likes its 55-cent dividend that currently yields 1.4%. Year-to-date through Nov. 13, its stock is up 33% and 21.8% on an annualized basis over the past decade.
AWK stock was one of my 20 stocks to buy if Biden wins the election.
Berkshire Hathaway (BRK.A, BRK.B)
Although most investors probably think of Warren Buffett’s holding company as an owner of insurance companies, such as Geico and possessing a massive equity portfolio, it also owns one of America’s largest railroads — Burlington Northern — and Berkshire Hathaway Energy (BHE), a collection of energy-related businesses with more than $100 billion in assets under its control.
For example, BHE Renewables operates in nine states with 1,536 megawatts of solar capacity, 1,665 MW of wind-generated power, 345 MW’s from geothermal facilities, and 138 MW from traditional hydroelectric facilities in Hawaii and the Philippines.
Interestingly, one of the various businesses operated by BHE is HomeServices of America, the largest residential real estate brokerage in the U.S. It operates under several brand names, including Berkshire Hathaway Home Services, generating more than $135 billion in sales volume across the country. In the first nine months of 2020, Berkshire’s railroad, utilities and energy revenues were $30.5 billion, with net earnings of $6.3 billion.
If it were an S&P 500 company, its railroad, utilities and energy businesses would be right up there with some of America’s largest companies.
CenterPoint Energy (CNP)
The company’s business dates all the way back to 1866 when the Houston Gas Light Company was formed to make and sell gas made from a combination of coal and seashells. More than 154 years later, it serves more than 7 million customers in the U.S., operating electric and natural gas utilities in eight states with assets totaling more than $33 billion.
On Nov. 5, CentrePoint reported its Q3 2020 results, including a 15-cent impairment for its midstream instruments. Excluding that, it earned 29 cents from its utility operations and 5 cents from its midstream investments for a total of 34 cents, down from 47 cents a year earlier.
Due to its strong results from its utility operations, CentrePoint raised its 2020 guidance for the unit to between $1.12 and $1.20 a share. It’s confident that it can continue to grow its utility earnings by 5-7% annually based on a 10% rate base increase.
The jewel of its assets is Houston Electric, which has seen 33 years of consecutive growth from its customers in the Houston area. As a result of this success, it plans to increase its capital investment over the next five years (2021-2025) by $3 billion to a total of $16 billion. This investment will allow it to increase its earnings by 5-7% annually, as mentioned earlier.
CentrePoint has an attractive 2.4% dividend yield. It’s definitely the underdog bet amongst these seven infrastructure stocks.
NextEra Energy (NEE)
This is probably my favorite utility stock.
Not only does it operate Florida Power & Light, one of the largest rate-regulated utilities in the country, which generates 54% of its overall profits. It’s also the world’s largest generator of renewable energy from wind and sun and battery storage.
It’s situated itself at the center of the transition from dirty energy to clean energy. I recently stated that NextEra had passed Exxon Mobil (NYSE:XOM) in market capitalization despite its still generating a significant portion of its power from coal and natural gas.
The important thing is that it’s figured out that the world wants clean energy. I don’t believe XOM has come to grips with this reality just yet.
As I said in my article, NextEra’s backlog for renewable energy projects was more than 15,000 megawatts, suggesting its capacity in this area will double over the next few years.
It just keeps delivering for shareholders. As infrastructure stocks go, it can’t be beaten.
NV5 Global (NVEE)
I must admit that I don’t spend a lot of time analyzing publicly traded consultants such as NV5 Global. In fact, I had never heard of it until I saw its name on a list of holdings for an infrastructure-focused exchange-traded fund.
It turns out that NV5 operates more than 100 offices in the U.S. and elsewhere with a particular emphasis on infrastructure project consulting. It operates three segments: Infrastructure, Building, Technology & Sciences and Geospatial solutions.
In the third quarter ended Oct. 3, 2020, its infrastructure segment accounted for 56% of its $170 million in revenue and 59% of its $33.4 million in pre-tax income. Thanks to acquisitions and an increase from its liquified natural gas consulting, its infrastructure segment’s sales and pre-tax income grew 9.0% and 40.7%, respectively, over the same period last year.
In the third quarter, NV5’s backlog grew by 9% over the second quarter and 23% over Q3 2019. It has a healthy roster of opportunities from all three operating segments in 2020’s final quarter and 2021.
It finished the third quarter with a $572 million backlog, up significantly from $151 million in Q3 2015. Its goal is to generate an annual run rate of $1 billion by 2020.
If America goes on an infrastructure binge, you can bet it will.
I’m one of those weird people who sees a brand name and immediately wants to know who owns it and if it’s a public company. The other day, I walked by a restaurant I frequent a fair bit, and there was a Genie scissor lift outside the building. My brain immediately went into thinking mode, trying to remember its owner.
Well, that would be Terex, a Connecticut-based company whose aerial work platforms (AWP) and materials processing machinery (MP) are used in infrastructure-related projects every day of the year on five different continents.
Genie is part of the company’s AWP segment. It generates 60% of the company’s revenue. In the first nine months of fiscal 2020, AWP’s sales were $1.37 billion, 58% lower than a year earlier due to Covid-19.
However, as stated in its Q3 2020 press release, it expects the fourth quarter to be its strongest from a free cash flow perspective. In the third quarter, it managed to generate $76.6 million in free cash flow despite a significant reduction in its net income and sales during the quarter.
“Terex’s third quarter results demonstrate our ability to offset challenging macroeconomic conditions by focusing on levers within our control,” said Terex chief financial officer John Sheehan. “We mitigated these headwinds with disciplined cost and working capital management to generate $54 million of positive free cash flow in the quarter. Our free cash flow performance reflects steady improvement in our businesses and strong execution.”
The company’s making lemonade after getting lemons for most of the year. I expect 2021 to pay dividends for shareholders.
Valmont Industries (VMI)
In August 2014, I recommended three agricultural stocks.
Valmont Industries, AGCO (NYSE:AGCO), and Deere & Company (NYSE:DE). All three had suffered a bit of an agriculture backlash that year. I thought their recent weakness made them contrarian buys.
In the six years since VMI is up 12%, AGCO is up 102% and Deere is up the most with a gain of 197%. By comparison, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is up 88% over the same period.
To say I’ve been disappointed by Valmont’s performance in recent years would be an understatement. That said, despite an annualized total return of 7.7% over the past five years, or half the U.S. markets as a whole, VMI has still managed to deliver a 15-year annualized total return of 11.4%, 160 basis points higher than the entire U.S. markets.
Long-term, the company’s focus is growing its revenues by 5-10% annually, its earnings per share by 10% or more each year, converting more than 100% of its net earnings into free cash flow, and delivering operating margins of 12% or more.
Unfortunately, like most companies, Valmont’s year-to-date numbers aren’t very good.
However, in the third quarter ended Sept. 26, sales were up 6.3%, adjusted earnings per share rose 13.7%, free cash flow of $202 million (almost double its income) and an operating margin of 9.3%.
While its latest quarter left some work to be done, its free cash flow for the trailing 12 months is $250 million for an FCF yield of 6.6%. That’s getting very close to value territory at 8%.
Once the novel coronavirus subsides and business gets back to normal, I expect Valmont to deliver decent returns for infrastructure investors.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.