Now that Congress has passed the $1 trillion infrastructure legislation, it won’t be long before picks and shovels are in the ground. And that’s good news for infrastructure stocks.
The infrastructure bill allocates $550 billion in new federal investments in America’s infrastructure over the coming five years, including $110 billion for roads, highways and other major projects. Money will also be invested in repairing bridges, expanding public transportation networks and rail corridors and advancing high-speed internet across the country.
This massive investment in infrastructure renewal will benefit companies involved in everything from mixing concrete to erecting cellular transmission towers. As the money flows and new projects get underway, we look at seven infrastructure stocks for investors to buy as the $1 trillion flows in.
- Vulcan Materials (NYSE:VMC)
- U.S. Concrete (NASDAQ:USCR)
- Nucor (NYSE:NUE)
- United Rentals (NYSE:URI)
- Martin Marietta (NYSE:MLM)
- Caterpillar (NYSE:CAT)
- American Tower (NYSE:AMT)
Infrastructure Stocks to Buy: Vulcan Materials (VMC)
Birmingham, Alabama-based Vulcan Materials is the largest producer of construction materials in the U.S. such as gravel, crushed stone and sand. The company employs more than 7,000 people at 300 locations across the U.S. and in Mexico. It can be expected that some of the infrastructure spending will be directed toward Vulcan Materials whose products are essentially the building blocks of modern construction.
Perhaps in anticipation of the infrastructure spending, VMC stock has risen 25% so far this year to $184 per share. In the past month, the stock price has jumped nearly 8%. Vulcan Materials’ stock has risen along with the broader materials sector, which rose 3% during the first week of August as the infrastructure bill was being debated in the U.S. Senate.
The rise in Vulcan Materials’ stock has come despite the company reporting disappointing second-quarter results due to higher commodity prices. Investors appear willing to look past the financials and to infrastructure investments.
U.S. Concrete (USCR)
U.S. Concrete specializes in ready-mix concrete. And plenty of that product will be needed to build new roads, bridges, overpasses and other infrastructure projects. However, this is likely the last time for investors to buy shares of Euless, Texas-based U.S. Concrete before the company is acquired by the aforementioned Vulcan Materials. In June, Vulcan Materials announced that it would acquire U.S. Concrete for $74 per share, a 30% premium. The deal is valued at $1.3 billion.
The acquisition of U.S. Concrete has been approved by both companies boards of directors and is expected to close in the second half of this year. Owing to the Vulcan Materials deal and the impending government spending on infrastructure, USCR stock has risen dramatically, up 81% on the year at $72.22 a share. Since the Vulcan Materials acquisition was first announced, U.S. Concrete’s stock price has jumped 26%.
Infrastructure Stocks to Buy: Nucor (NUE)
Charlotte, North Carolina-based Nucor is the largest producer of steel in America and also the biggest recycler of scrap metal in all of North America. The company will be a definite winner of the coming infrastructure spending. Nucor’s steel bars, beams, joists and girders will be front-and-center in the infrastructure buildout that comes from the government spending. Many pundits and market watchers have singled out NUE stock as a top pick to benefit from the $1 trillion in infrastructure spending.
NUE stock has already had a big run this year having risen 130% since January to its current level of $120.77 a share. However, more gains are likely as government dollars are spent on infrastructure renewal. Indeed, Nucor’s share price jumped 10% the day that the bi-partisan infrastructure bill was passed by the U.S. Senate. Additionally, Nucor has benefitted from sky-high steel prices this year.
The price of U.S. hot-rolled coil steel reached a record high of $1,900 per short ton on Aug. 10. High steel prices have enabled Nucor to report two consecutive quarters of record earnings.
United Rentals (URI)
Stamford, Connecticut-based United Rentals is the world’s largest construction equipment rental company. It rents out critically important products such as dump trucks, forklifts, air compressors and power generators that are found on most construction sites. In addition to having operations throughout the U.S., United Rentals is also active in every Canadian province and throughout Europe. With more than 19,000 employees, United Rentals is one of the largest construction companies operating today.
Like the other companies featured in this article, URI stock has had a stellar year so far, up 48% since January to $340 per share. United Rentals’ share price has risen 14% in the past month as passage of the federal infrastructure bill became more likely.
Yet even after this huge rally, the stock trades at a fair 26 times earnings, a significant discount to the average price-to-earnings ratio among stocks in the S&P 500 index of 35x. The company recently raised its guidance for full-year revenue and adjusted earnings, citing a booming construction industry.
Infrastructure Stocks to Buy: Martin Marietta (MLM)
Raleigh, North Carolina headquartered Martin Marietta is another company that provides the aggregate materials needed to make the concrete used in roads, sidewalks and building foundations. It is an important supplier to the construction industry across the U.S. and should perform well as the infrastructure money rolls out. Year-to-date, MLM stock has grown 35% to $375. And, it has enjoyed an 10% lift over the past month as the infrastructure bill dominated news headlines.
Analysts are already pricing in future gains for Martin Marietta. Wall Street expect the company’s revenue to rise 8.4% in fiscal year 2021 and 7.1% in fiscal 2022. The company’s earnings per share (EPS) are forecast to grow 12.8% in fiscal 2021 and 15.1% in fiscal 2022. And, analysts see the company’s EPS growing at a 14.1% rate per year in each of the next five years.
Those are impressive growth targets, which could be exceeded once the government spending on infrastructure shows up on the company’s bottom line.
Caterpillar is an industry leader when it comes to construction vehicles and machinery. The Deerfield, Illinois-based company makes dump trucks, backhoes, steamrollers, asphalt pavers, excavators and motor graders. In short, Caterpillar manufactures all the equipment needed to build and repair American roads, highways, bridges and other infrastructure. The company’s distinctive yellow and black machinery should be a fixture at construction sites across the country over the next five years.
While CAT stock enjoyed a bounce higher on news that the infrastructure bill had been approved in Washington, D.C., the company’s share price has lagged the others on this list. In the last month, CAT stock has climbed 3% higher and it has actually declined 0.5% over the past six months at $209 a share. The stock is undervalued at its current price, if analyst ratings are to be believed. The median price target on the stocks is $235, suggesting a further 12% gain in coming months.
In addition to the infrastructure spending, Caterpillar has also reported strong earnings, including a 105% year-over-year improvement in its second quarter EPS of $2.60 and Q2 revenues that rose 29% from a year earlier to $12.9 billion. Buy the dip.
Infrastructure Stocks to Buy: American Tower (AMT)
President Biden’s infrastructure bill not only focuses on roads and bridges. The legislation also includes $65 billion to improve Americans’ internet access and to bolster the availability of fifth-generation (5G) wireless internet, which offers the fastest online speeds ever. And this spending on internet access is likely to benefit Boston-based American Tower, a Real Estate Investment Trust (REIT) that is among the largest owners and operators of wireless and broadcast communication towers in the U.S. and around the world.
AMT stock has been another top performer in 2021, up 29% on the year at $283 per share. The company’s stock has increased only 1.50% since the $1 trillion infrastructure bill was approved. But further gains can be counted on as money is directed at the infrastructure needed to power America’s information super highway. In the meantime, investors can comfort themselves with the knowledge that American Tower has raised its dividend for 40 consecutive quarters. The company’s annual dividend is now worth $5.08 per share for a yield of 1.78%.
On the date of publication, Joel Baglole held a long position in CAT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.