Despite the ravages of the novel coronavirus pandemic, major indices continue to trade near or at all-time highs. But it’s also the types of sectors that are flying that make this dichotomy incredibly perplexing. For instance, the Technology Select Sector SPDR Fund (NYSEARCA:XLK) is nearing 40% gains year-to-date while some state eviction moratoriums are about to expire. And amid this craziness, the idea of infrastructure stocks seems bonkers.
Let’s face it — while this supposedly K-shaped economic recovery flies in the face of common sense, we can appreciate why people are speculating on tech and other in-demand market segments. Bottom line, they’re sexy, like lights attracting moths. We’ll find out if those lights are bug zappers or not later. But infrastructure stocks? I can’t imagine too many folks getting their jollies from this boring sector.
Still, here are some interesting facts to consider. First, according to a CouponFollow.com survey, most consumers who took advantage of “buy now, pay later” programs bought electronics. However, the purchase totals were highest for home and gardening products, which hauled in an average of $1,187. Interestingly, even in the personal economy, infrastructure garnered serious demand.
More importantly, as a broader segment, skilled labor occupations provide opportunities for those out of work or seeking it. For instance, according to information complied by JobsList, the installation, maintenance and repair segment will grow by 2.8% from 2019 to 2029, whereas the construction and extraction sector will increase by 4%. The national average is 3.7%, which suggests that infrastructure stocks should not be ignored.
Further, JobsList makes an excellent argument. “The fact is that while the cost of college is skyrocketing, the salary premium degree-holders can expect to earn is barely increasing each year.” Also keep in mind that some sectors, like office and administrative support, are seeing declines in long-term forecasts. This is another underappreciated indicator that the slow and steady game could benefit these infrastructure stocks.
Here are 8 infrastructure stocks that will shine in the spotlight
- Caterpillar (NYSE:CAT)
- Vulcan Materials Company (NYSE:VMC)
- United Rentals (NYSE:URI)
- Brookfield Renewable Partners (NYSE:BEP)
- Essential Utilities (NYSE:WTRG)
- Waste Management (NYSE:WM)
- American Tower (NYSE:AMT)
- Union Pacific (NYSE:UNP)
As you can see from the list above, this sector is quite diverse. That’s going to be a useful attribute as these reliable infrastructure stocks head toward an exciting but uncertain post-pandemic world.
Initially, you might not expect Caterpillar to be ranked as an infrastructure stock to buy. Throughout the campaign leading up to the 2016 election, then-real estate mogul Donald Trump railed against Japanese corporations, instead promising to bolster American companies like Caterpillar. Good for CAT stock and bad for foreign competitors, right?
Like anything associated with the Trump administration, it’s complicated. Yes, CAT stock enjoyed a brilliant year — as far as blue-chip infrastructure stocks go — in 2017, as President Trump made America great again. But shares hit a peak in early 2018 and then subsequently succumbed to a long-term downtrend. It wasn’t until Joe Biden won this year’s election that Caterpillar itself was great again.
What happened? It turns out that while infrastructure companies loved Trump’s pro-business policies, they also value stability and diplomacy. Frankly, the outgoing administration’s stance on international affairs was a distraction for companies with global operations. With Biden, things seem poised to change, which explains the seemingly counterintuitive rally.
Vulcan Materials Company (VMC)
Unlike other infrastructure stocks, Vulcan Materials had a frenetic response to the Trump administration as far as the market was concerned. Immediately following the 2017 inauguration, VMC stock bounced higher. But later, shares began tumbling. Throughout the rest of that year and most of 2018, Vulcan undulated wildly before dropping to a low point in October 2018.
Still, 2019 proved to be an incredible recovery year for VMC stock. Despite deteriorating U.S.-China relations weighing on global markets, Vulcan kept charging throughout the first three quarters of last year. Early this year, a thawing of relations with China contributed to bullish sentiment for Vulcan. Unfortunately, the novel coronavirus made its unwanted introduction and you know the rest.
However, VMC has responded reasonably well to Biden’s electoral victory. From the immediate reaction to the election, it appears many VMC investors were hoping for a second term for Trump. Nevertheless, there are benefits to Biden’s promise to build back better.
With rationality and traditional diplomacy returning to the White House, Vulcan could be a surprising beneficiary.
United Rentals (URI)
As the world’s largest equipment rental company, United Rentals’ business case made tremendous sense in the years before the pandemic. But with Covid-19’s many disruptions, particularly to high-contact activities, the company became an infrastructure stock to avoid, at least on paper. Yet URI managed a remarkably contrarian performance, gaining 44% YTD. Is this run sustainable?
If we’re being honest, buying URI stock isn’t intuitive. However, not all construction-related projects evaporate over a pandemic. Therefore, United Rentals wasn’t rendered wholly irrelevant like some of its peers. More importantly, many involved in the building and infrastructure industries want to limit their exposure to long-term liabilities right now. You just don’t know what’s around the corner, which perfectly suits United’s core rental business.
Finally, while the Trump administration is theoretically better for URI stock, the incoming Biden administration may offer some pleasant surprises. Certainly, for the economy to improve we need to control the coronavirus pandemic. Arguably, Biden’s promise to listen to the science has given Wall Street something to cheer about.
Brookfield Renewable Partners (BEP)
As Brookfield Renewable Partners demonstrates, infrastructure stocks aren’t always levered to traditional, “analog” industries. Instead, BEP stock has been one of the hottest tickets in town, thanks to overwhelming interest in clean energy solutions. Further, with President-elect Biden’s pledge to get the U.S. to become a net-zero emissions economy by 2050, the future appears bright for Brookfield.
As you know, the shift in environmental, social and governance (ESG) concerns has been years in the making. While BEP stock enjoys demand for its underlying clean power production, I’m most interested in the battery storage system. Yes, renewable energy is critical, particularly because of rising population levels and their corresponding energy consumption. However, renewables tend to be intermittent, making storage an indelible part of the green equation.
Further, this terrible year offered a surprising catalyst for Brookfield and the broader battery storage business. For instance, the California rolling blackouts demonstrated the vulnerability of spike utility demand — something that intermittent power sources can’t readily accommodate. But with battery storage, such issues will become less disruptive, boding well for BEP stock.
Essential Utilities (WTRG)
If there’s any long-term benefit from considering infrastructure stocks to buy, it’s that it forces us to think about what we take for granted. Sure, we’re inundated with the latest gizmos and gadgets or the latest happenings on social media. But none of that really matters if we lose access to the essentials. That’s why investors ought to take a good look at water utility firm Essential Utilities.
Here’s a quick rule if you decide to venture out into the great beyond: three days, three weeks. The latter is roughly the time you can survive without food, but the former is your life expectancy without water. That’s why if you’re going to prepare your survival kit, you should place heavier emphasis on water and less on food. And this marks the fundamental case for WTRG stock.
But the other is that the U.S. has a clean water crisis. I had zero clue that “more than 30 million Americans lived in areas where water systems violated safety rules at the beginning of last year, according to data from the Environmental Protection Agency.” With water turning into an increasingly precious commodity, you may want to add WTRG stock to your portfolio.
Waste Management (WM)
When discussing infrastructure stocks to buy, the usual suspects take center stage for good reason. These are the companies that are focused on building something, anything. But few talk about the importance of dealing with the waste products they invariably produced. That’s where Waste Management enters the fray.
True, WM stock isn’t exactly the sexiest infrastructure play. Nevertheless, if Biden truly builds back better, Waste Management and its ilk will have their day in the sun. True, the push for a greener society should mitigate our waste production. Plus, exciting technologies can make products longer lasting, helping to ease the pressure on our landfills. Still, that pressure won’t be eliminated, not by a long shot.
With our sizable population and consumption culture, we depended on other countries to handle our waste products. But increasingly, those developing countries have rejected our trash — which, you know, good for them. Of course, that puts us in a bind, which makes a cynical plus for WM stock.
American Tower (AMT)
You may not know or even care too much about the ongoing 5G rollout beyond the obvious: basically, faster mobile internet speeds (though I must say, the comparison to prior mobile networks is remarkable). Though tech nerds will cringe at what I’m about to say next, knowledge of a platform isn’t pivotal. As an example, I don’t understand how my microwave works, just that it does.
For our purposes, 5G will take infrastructure stocks fundamentally to the next level. From cloud services to smart cities, the phenomenal speed of this next-generation network will enable profound innovations. And that means an incalculable number of jobs, especially for those involved in the connectivity side of the industry. This is why investors ought to put American Tower and specifically AMT stock on their radar.
We could go all day about what the 5G buildout can offer society. But in the new normal, the Internet of Things will become critical as vulnerable, self-isolating will still have access to necessary services through vastly improved connectivity protocols. But to realize the powerful applications of 5G requires infrastructure, which in turn benefits the underlying business of AMT stock.
Union Pacific (UNP)
In recent sessions, rail transportation specialist Union Pacific has been all over the map. Unfortunately, this was due to the coronavirus disrupting the intermodal supply chain. According to Kenny Rocker, executive vice president of marketing and sales stated in the third-quarter earnings call, “You got the terminals, you got the port, you got the dray carriers, everyone was constrained.”
Nevertheless, you may want to add UNP stock to your list of infrastructure stocks to buy. That’s because the company is targeting growth in e-commerce volume, which is a very reasonable assumption. As expected, we saw a huge spike in online sales during Black Friday as many shoppers elected to stay at home and avoid the crowds.
But it’s not just gift giving that may end up supporting UNP stock. The overriding reality is that Covid-19 has changed America for at least the next several years. It may take a generation or two for us to get back to the old way of doing things. For better or for worse, that means e-commerce will reign supreme.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.