Infrastructure stocks have been some of the bigger winners throughout the pandemic. In its 2017 “Comprehensive Assessment of America’s Infrastructure,” the American Society of Civil Engineers gave the U.S. infrastructure a D plus. With another report due out this year, the country is not likely to get a better grade.
Infrastructure would seem to be an issue where both political parties could find common ground. But the devil is in the details as they say. And previous administrations’ efforts have either lacked political will or faced legislative gridlock.
However many sector analysts see a new opportunity with the Democratic party now holding control of both the executive and legislative branches of our government. And there is increasing optimism that the Biden administration will look to pass a $1.9 trillion infrastructure plan.
This plan is likely to include the standard fare of modernizing highways, bridges and tunnels and expanding rural access to broadband. However in the case of the Biden administration, climate change will be a central theme of any infrastructure program.
This may include boilerplate initiatives such as reinforcing environmental regulations and guaranteeing safe drinking water. But it’s also likely to include putting federal dollars behind initiatives that will accelerate the creation and adoption of autonomous vehicles.
Here is a list of 10 infrastructure stocks that go beyond the pick-and-shovel stocks commonly associated with rebuilding the country:
- Brookfield Infrastructure Partners (NYSE:BIP)
- Crown Castle International (NYSE:CCI)
- American Tower (NYSE:AMT)
- Nucor (NYSE:NUE)
- Union Pacific (NYSE:UNP)
- NV5 Global (NASDAQ:NVEE)
- Advanced Drainage Systems (NYSE:WMS)
- United Rentals (NYSE:URI)
- NextEra Energy (NYSE:NEE)
- Trimble (NASDAQ:TRMB)
Infrastructure Stocks: Brookfield Infrastructure Partners (BIP)
Brookfield Infrastructure Partners would be a logical candidate to lead this list for many reasons. The company manages $91 billion in infrastructure assets. The vast majority (95%) of its revenue stems from long-term contracts or government-regulated rates. That’s the kind of predictability that analysts love.
And despite the pandemic, the company has posted a very respectable return of nearly 10% in the last 12 months. In fact, the BIP stock return is over 100% since the pandemic sell-off in March 2020.
But specific to a potential Biden infrastructure plan, Brookfield just announced the public issuance of 8 million Class A Preferred Limited Partnership Units that raised gross proceeds of $200 million. The company plans to use that money to finance and/or refinance what the company refers to as “Eligible Green Projects.” This puts the company in the position to be a king maker for the many companies that are looking to have a place at the table.
Plus, this is a favorable stock for income generation. The company currently pays a yearly dividend of $1.94 (paid out quarterly) and its current dividend yield is 3.63%.
Crown Castle International (CCI)
Building out our 5G infrastructure is an ongoing project that will only continue to grow. CCI stock is at the core of this current and future 5G rollout. Unlike the shift from 3G to 4G, the transition to 5G is requiring new hardware for the network itself. In addition to the large cell towers, 5G requires a network of small cells and fiber optic cable.
Crown Castle is a real estate investment trust (REIT) that owns an impressive piece of the 5G infrastructure including 40,000 cell towers, 70,000 small cell nodes, and 60,000 route miles of the fiber optic cable used to connect it all. The company rents this equipment to wireless providers.
Although not a pure play on mobile communications, CCI stock can still be considered a defensive stock that benefits from the fact that many Americans will sacrifice many other comforts to ensure their wireless service is uninterrupted. This gives the company stable, long-term income that gets analysts excited.
Crown Castle has a CAGR of 17.07% over the last 10 years. And investors in CCI stock get rewarded with an attractive dividend that currently pays out a yield of 3.19%.
Infrastructure Stocks: American Tower (AMT)
American Tower is another choice among infrastructure stocks to play the 5G rollout. AMT stock is negative for the trailing 12-month period. But this may be a case of what have you done for me lately. Specifically, the stock is up 6% since the beginning of the year.
The company owns 180,000 cell phone towers worldwide. The towers have extra capacity that the company sells to generate revenue. A company like American Tower will benefit from 5G considering that antennas and other equipment tend to be large and heavy. And with exposure to two of the fastest growing 5G markets in India and Brazil, it looks like the company is well positioned in 2021.
Another catalyst for the stock is that AMT recently announced it was increasing its equity stake in AST & Science, a private company that has an ambitious goal to develop what it calls SpaceMobile. The goal is to develop a constellation of satellites that will deliver broadband speed internet to smartphones without the need for any additional equipment. AST & Science will be going public via a special purpose acquisition company.
American Tower increased its dividend by 9 cents in December, which made it nine consecutive years for the company.
Nucor is an attractive picks and shovels play among infrastructure stocks. NUE stock did not enjoy the same success as others in this category, but the company has tremendous upside if Congress is serious about upgrading our nation’s roads and bridges.
This is because Nucor is the largest steel producer in the United States, and a lot more. One of the attributes about the stock that makes it so appealing is that it also offers a highly diversified portfolio of steel products. And the company also has an innovative approach by producing steel through its 25 “mini mills.” This allows the company to be more nimble and reach different markets which helps drive down the company’s cost to get steel where it needs to be.
Like many of the companies on this list, Nucor is a financially strong company, and that is reflected in the reliability of the company’s dividend, which has increased for 47 consecutive years and stands at 3.14%.
Infrastructure Stocks: Union Pacific (UNP)
As you might expect, railroad traffic suffered a downturn at the onset of the novel coronavirus pandemic. And even a sector leader like Union Pacific was not unaffected. But the company reported an improving outlook in the third quarter that carried over into the company’s fourth-quarter numbers. The company beat analysts’ expectations for earnings per share by 11 cents.
UNP stock may be a better fit for retirees who are looking for a source of fixed income. But that doesn’t mean that growth-minded investors shouldn’t use this time to jump on board as well. The consensus among analysts is that there isn’t much upside to the stock at the moment, which may explain why the stock has dropped from its highs.
Another reason is that the company’s consecutive years of increasing its dividend ended at seven. However, the company still pays a dividend that seems well supported at only about 35% of cash flow.
At the same time, some analysts have upgraded their price target for UNP stock, putting it as high as $250.
NV5 Global (NVEE)
NV5 Global is a play on the expected growth in companies that focus on sustainable solutions. It is not a pure play among infrastructure stocks, but infrastructure is one of the company’s business units. NV5 works with clients to “develop sustainable solutions that go beyond code compliance design.” The company articulates its benefit as being able to help clients reduce the overall cost of their projects.
Prior to the election, NVEE stock was negative for 2020, but since then it pushed past a line of resistance and has skyrocketed higher. Growth-minded investors can be optimistic that NV5 Global will be part of the Biden administration’s “both/and” plan to address infrastructure and climate change.
NVEE is not extensively covered by analysts. However, it did receive a $136 price target from Roth Capital on Jan. 13. That would be about a 50% gain from where the stock is at the time of this writing. If you don’t have a position, the company will report earnings in March and you may get some direction at that time.
Infrastructure Stocks: Advanced Drainage Systems (WMS)
If the new administration in Washington is going to get serious about updating the nation’s water infrastructure, it’s likely that Advanced Drainage System will be among the most important infrastructure stocks to buy. The company manufactures and supplies industrial-grade plumbing supplies that assist the building and construction industries.
And it does so with sustainability as a core element. To that end, the company is also the second largest plastic recycling company in North America and holds 155 patents on its products that use millions of pounds of recycled plastic.
All of the company’s business units look to be targets of an infrastructure plan that will focus on making our nation’s water infrastructure more climate friendly.
When the company last reported earnings it had a nearly 100% increase in year-over-year free cash flow (FCF) from $135 million to $257 million. At the time of this writing, the company was getting ready to post earnings. If the company beats expectations WMS stock will likely break to the upside.
United Rentals (URI)
If you have the risk tolerance for a volatile, but upward- trending stock, United Rentals presents an opportunity. United Rentals is the leader in what is a fragmented equipment-rental industry. The company holds approximately 13% of the market.
The stock has had a long history of share appreciation, but it’s not without some unsettling dips to test the mettle of investors. For example, on its way to a 78% trailing 12-month game, URI stock had several periods in which the stock dropped at least 10%. Some of that has to do with the fact that year-over-year revenue came in lower ($1.86 billion) than in 2019 ($1.94 billion).
However, investors can look at that as an anomaly. From 2009 through 2019, United Rentals had a CAGR of close to 15%. The company was a pandemic winner as companies looked to rent heavy machinery and construction equipment. And that looks to continue into 2021.
Infrastructure Stocks: NextEra Energy (NEE)
If you’re looking to invest in infrastructure stocks that focus on renewable energy, you’ll have to consider NextEra Energy. The reason is simple. Our nation’s electrical grid is old and it’s not fashioned to deal with the power that is coming from renewable sources like solar and wind.
That’s where NextEra comes in. It’s a leader in the traditional energy markets. This puts it in a unique position to understand the problem. And it has the financial resources to be part of the solution. As evidence of this, NextEra completed an agreement to acquire GridLiance for $660 million. And the company is attempting to meet an aggressive goal to raise $13 billion in cash through the sale of assets to numerous entities including its subsidiary NextEra Energy Partners (NYSE:NEP).
With the proceeds, the company plans to finance a 15 GW development project that would be larger than its current renewable product pipeline.
If you get excited, or incensed, about potholes, Trimble is a great way to close our list of infrastructure stocks. Trimble brings hardware and software to bear in artificial intelligence (AI) solutions that help the company meet its mantra of “Transforming the way the world works.” One of its latest innovations is a 3D paving control platform.
The Trimble Roadworks 3D Paving Control Platform is what the company describes as the next-generation for 3D asphalt paving control systems. And if you didn’t realize there was a prior generation, you’re not alone. However, an innovation like this is just one example of why you should consider buying TRBM stock. This is an under-the-radar AI play that has a consistent history of share price growth.
Trimble delivered a stellar earnings report in November, and there is speculation that they’ll do it again when they report in mid-February. And this is supported by a recent price target upgrade the company received from Morgan Stanley (NYSE:MS).
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.