There are a few good reasons investors should take a look at infrastructure stocks right now.
The Joe Biden presidency is going to give a boost to infrastructure, having put forth a $2 trillion infrastructure plan focused on roads, bridges, and EV infrastructure among other areas. Additionally, the United States economy is underpinned by aging roads, bridges, and infrastructure at large. Therefore an investment into it makes our economy even stronger.
So, investors have every reason to be interested in infrastructure stocks now.
But it’s also important to remember that the infrastructure stocks that were strong before, are the same ones that are strong now. The macroeconomic catalysts are there. For investors, the task now becomes finding the strongest performers poised to rise and capitalize on this opportunity. Here are seven for your consideration:
- Brookfield Infrastructure Partners (NYSE:BIP)
- Deere & Co. (NYSE:DE)
- ArcelorMittal (NYSE:MT)
- American Tower REIT (NYSE:AMT)
- CSX (NASDAQ:CSX)
- Union Pacific (NYSE:UNP)
- Jacobs Engineering Group (NYSE:J)
Infrastructure Stocks: Brookfield Infrastructure Partners (BIP)
Brookfield Infrastructure Partners’ home page describes the firm as “one of the largest owners and operators of critical and diverse global infrastructure networks which facilitate the movement and storage of energy, water, freight, passengers and data.” Perhaps more importantly for investors is that the firm also seeks a long-term return on equity of 12-15%.
Brookfield currently manages $91 billion in infrastructure assets. The company has also averaged 15% compound annual returns for the past dozen years.
The firm is fond of utilizing funds from operations, or FFO, as a performance metric in judging its business. FFO grew year-over-year across three of five major infrastructure areas within the company in the third quarter. And for the first three quarters of 2020, it increased FFO by $30 million to $1.056 billion.
BIP stock is also a good income generator, with its $1.94 a share dividend that offers a current yield of 3.67%.
Brookfield very recently issued $200 million worth of fixed distribution shares on Jan. 21. The proceeds will fund what it refers to as “Eligible Green Projects.” The company looks to be gearing up for the new administration and is in prime position to capitalize.
Deere & Co. (DE)
Deere & Co. might be best known in the public perception as a company that makes tractors. Most consumers would likely associate the brand with lawnmowers, grounds keeping and agricultural tractors. Yet the company is equally well known for its heavy equipment used in construction.
The company did experience a tough 2020 in aggregate. Net sales and revenues decreased by 9% compared to 2019. Net income dropped 15% in the same period. However, the company was strong in that it delivered EPS beats in each and every quarter of 2020.
Yet, Q4 looks to have been the turning point: both net income and diluted EPS rose by 5% over Q4 2019. And although Deere did experience rough patches, Wall Street has remained fond of it. Shares have remained overweight during the year and political winds are clearly in DE stock’s favor now.
Among the products that Deere produces that should feature prominently in an infrastructure build-out are pipe-laying crawlers, skid steers, and even electric vehicles. The company is jointly testing an EV backhoe in collaboration with National Grid (NYSE:NGG).
National Grid is utilizing the vehicle across multiple job sites as a proof of concept.
ArecelorMittal is the largest steel company in the world. It serves the two important infrastructure sectors of construction and transport. President Biden is keenly aware of our nation’s need for bridges and their economic importance.
One reason that MT stock is set to pop is that its steel bridges are maintenance free: its Duracorr steel plate bridges don’t require painting for their lifetime. Although the particular steel was developed in the 90s, the first U.S. installed bridge occurred in 2004 in California.
Investors should be interested in this because roughly a fifth of U.S. steel superstructure bridges are structurally deficient. ArcelorMittal is sure to see an uptick in sales soon.
I believe the company will also benefit from its position as a leader in providing steel used in railways. “Amtrak Joe” is a big proponent of strengthening U.S. railways. Of course railways are important to the movement of goods that fuel the economy, but it is also a source of blue-collar jobs. Both are great arguments that benefit ArcelorMittal as a provider of railway steel.
The company recently hit $7 billion in debt. That might sound like a bad outcome, but it is actually an achievement. The company has long desired to deleverage to the target level of $7 billion. Now that it has done so, investors should be optimistic: the company will be prioritizing cash returns to shareholders and a $500 million share buyback plan.
The company has lots of potential earnings sitting in front of it with the infrastructure spend and has deleveraged which means earnings are headed to investors wise enough to jump on board now.
American Tower REIT (AMT)
The current push toward revitalizing American infrastructure is geared heavily toward roads, transport, and bridges. However, there is another area which is also important: 5G infrastructure. Which brings us to American Tower.
Mobile carriers and phone manufacturers garner a greater share of the headlines than the equipment and infrastructure required to run them. But shrewd investors know that those equipment manufacturers stand to provide strong returns as 5G takes holds. And that’s exactly why AMT stock should be on investors’ radars.
It builds 5G towers that power everything. And the company has a strong year despite the unprecedented operating environment. In Q3 EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 5.6%. In the same period funds from operations also rose 14.7%.
5G infrastructure is vitally important to the information economy. Information drives the economy today more than ever and 5G enables more information to be transmitted.
American Tower also recently made a strategic acquisition in Europe expanding its tower presence by 31,000. The company expects immediately accretive resulting in $410 million in gross margin.
CSX is a railway transport company with a 20,000-mile network that spans 23 U.S. states and two Canadian provinces. Shares of CSX stock represent an investment in existing and expanding infrastructure, not a company that builds it. Before getting into the reasons that an investment in CSX stock is a wise idea, I want to note a few high points.
The company has managed to best EPS earnings guidance in each of the four quarters of 2020. The analysts covering the equity don’t believe it to be a slam dunk, but 13 consider it investment worthy while eight consider it to be a hold.
Much of what drives railway freight success is simply the volume of goods which can be shipped via any given operator. The company predicts strong catalysts into 2021. It anticipates shipment increases will exceed GDP growth. One interpretation of that prediction is that CSX will outpace the general economy.
Two other driving factors for CSX are intermodal freight transportation, and the transportation of coal. Intermodal transport refers to containers which are shipped via train and at least one more mode of transportation. For example, ships. CSX expects that intermodal freight will eclipse merchandise which is set to outpace GDP growth.
The company also expects coal to factor more heavily moving forward. Q4 revenues dipped a modest 2% YoY at CSX. However, coal revenue fell 18%. The company anticipates a strong rebound in this area as well.
Union Pacific (UNP)
Whereas CSX predominantly operates in the eastern U.S., Union Pacific operates primarily in the western U.S. Union Pacific covers a 32,000 mile network. The point here is that the two companies dominate their respective regions and together serve the U.S. railway freight industry.
Union Pacific recently recorded a few strong metrics in its Q4 earnings report. Investors should be interested to know that the company increased its EPS by 17%. It also established a record quarter operating ratio of 55.6%, an improvement of 4.1% over the same period 2019. Operating ratio is a measurement that identifies how well a company contains operating expenses while generating revenues.
Of course, any company wants to spend less on operations and make more revenue. Cheap fuel prices accounted for about 0.9% of that 4.1% reduction meaning management was primarily responsible, not extraneous factors.
UNP stock should rise for the same reasons that CSX should. Total revenues decreased by 10% over the entire 2020 fiscal year at Union Pacific. Net income decreased by the same amount. If we assume that Union Pacific can expect coal shipments to rise as CSX does, the company should see a rise in revenue there. It also saw a decrease in metals and materials shipments which may well see an increase if infrastructure projects see an uptick soon.
Jacobs Engineering Group (NYSE:J)
The last stock on this list is Jacobs Engineering Group. The company provides infrastructure solutions across many sub sectors. These include water, buildings, transportation, aviation, environmental, and advanced facilities. But the company has a wide range of experience across many of the critical infrastructure areas that have growth catalysts in 2021.
The company was recently awarded for having completed two of the 10 best road projects. This notoriety could perhaps mean more work for the company given President Biden’s plans to revamp U.S. roadways. But the company is much more than road projects. It has a long list of completed projects in all of the aforementioned sub sectors. Investors who are interested in the group’s expertise should look here.
Given that Jacobs Engineering Group completes massive projects that span long time frames, it hasn’t been as affected by the pandemic. Trailing 12 month revenue in June of 2019 was recorded at $9.8 billion. It rose to $10.8 billion by June of 2020. The company also has a roughly $30 billion pipeline of qualified projects scheduled for the 18 months from Sept. 2020.
The company anticipates 2021 growth in adjusted EBITDA and EPS. Investors should be interested in J stock given its performance and the catalysts pushing it forward.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.