The recent signing of the new infrastructure bill – called the Infrastructure Investment and Jobs Act – by President Joe Biden will very soon put into law what investors have been wondering about for some months since the president came into office. With the bill becoming a reality, we see the impact on infrastructure stocks as being sizable given the enormous amount of investment coming from the bill.
In this article, we’ll take a look at three stocks we think stand to benefit from the new infrastructure bill coming into law. They are:
Vulcan Materials (NYSE:VMC)
What’s in the Bill?
The bill includes a total investment of more than a trillion dollars, making it one of the largest pieces of legislation in U.S. history. It includes a variety of things, but it is certainly heavy with infrastructure spending. The biggest component of the bill is a $550 billion allotment for new funding in the areas of transportation, utilities and broadband access.
There’s a further $110 billion for roads and bridges, $66 billion for passenger and freight rail, and $39 billion for public transit improvements. There are $65 billion earmarked for expanding access to broadband internet, and $55 billion in water system improvements, including replacing aging lead pipes.
In short, there is a huge amount of money on the table in terms of investment from the U.S. government. And that means there are companies that will reap the benefits of this.
These benefits extend from those actually performing the work, to those that supply those workers with materials they need, those that make the equipment workers will use to make the improvements, and so forth.
The infrastructure bill is transformational in a lot of ways for several industries, and below, we take a look at three companies we think stand to benefit from the Infrastructure Investment Job Act.
Infrastructure Stocks: Caterpillar (CAT)
First on our list of infrastructure stocks is heavy machinery giant Caterpillar. This company is one of the larger that stands to benefit from the infrastructure bill, producing about $50 billion in annual revenue, and trading with a $113 billion market capitalization.
Caterpillar has some obvious links to the work given it makes heavy equipment for all sorts of things that are directly called out in the bill. This includes machinery for making roads and bridges, digging equipment which is critical for water system service and replacement, as well as broadband access expansion, and the list goes on.
Perhaps more so than most companies, Caterpillar has a very direct and deep link to the kinds of spending enumerated in the bill.
The company is impressive in its own right, even before considering the impact of the infrastructure bill. Caterpillar has a 28-year streak of raising its dividend, which is even more impressive considering the industries Caterpillar sells to are highly cyclical. We expect that to continue as we see 6% earnings-per-share growth annually in the coming years, with potential upside from the impact of the infrastructure bill.
Next up is Nucor, a steel maker that was founded in 1958, and has paid rising dividends to shareholders for the past 48 years.
Nucor is set for record revenue this year of $36 billion, which is largely due to pent-up demand from the pandemic recession in 2020. The stock trades with a market capitalization of $32 billion today.
Nucor, like Caterpillar, has the ability to be engrained in many aspects of the infrastructure bill. It produces steel for all sorts of uses, including water systems, bridges, building construction, etc. Those and more factor heavily into the infrastructure bill, and we think Nucor is likely to receive a significant benefit from the enhanced level of spending given its size, scale, and reputation in the steel industry.
We see ~4% annual earnings-per-share growth from normalized levels in the coming years, which could see upside if Nucor can capture some of this additional spending, and we are confident it will. We regard it as the highest-quality steel stock in the market given its reputation and track record of success, and we believe that will continue with the implementation of this bill in the coming years.
Infrastructure Stocks: Vulcan Materials (VMC)
Our third stock is Vulcan Materials, a company with a 100-year history in the aggregates industry. It generates $5.5 billion in annual revenue, and trades with a $27 billion market capitalization.
Vulcan manufactures and supplies construction aggregate in the U.S. that is used in things like asphalt and concrete, as well as sand and stone, and related products. Vulcan’s tie to the infrastructure bill is also deep given things like asphalt and concrete are used to make roads and bridges, as well as general construction projects.
With so much of the bill being allocated to roads and bridges, we see Vulcan as a primary beneficiary of the bill.
Vulcan is unaspiringly cyclical but we forecast a 5% annual earnings-per-share growth rate for the foreseeable future. Vulcan is another we see potentially significant upside for with the implementation of the infrastructure bill, but is a strong growth choice in its own right as well.
When investing based upon a catalyst, it is important to understand how a particular company fits into the narrative of the catalyst. With the infrastructure bill, we have fairly defined parameters for how much money is being spent, and in what sectors.
In our view, the best way to take advantage of this long-term boost to spending is to find the highest quality stocks in the impacted industries, and that’s what we’ve done here.
We see Caterpillar, Nucor, and Vulcan as strong picks in their own right, but with the added catalyst of hundreds of billions of dollars of additional spending, we see their futures as even brighter than they were before.
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.