There seems to be a shift in the market. Speculative growth stocks and cryptocurrency, among other hot 2021 trends, have slumped in recent months. Meanwhile, more defensive stocks such as energy, utilities, industrials and food and beverage companies are rising. Amid these shifting sectoral winds, it’s time to take a look at infrastructure stocks.
Infrastructure hasn’t been at the forefront of the stock market in quite awhile, but President Joe Biden’s Administration’s efforts to “Build Back Better” should be sending more money into the area. That could line up well with other catalysts, such as the rise of certain cyclical stocks in things tied to commodities and the housing market.
Also, it’s important to note that infrastructure stocks encompass a broad category of companies. This includes firms that provide, serve or create materials to offer basic societal building blocks such as power and water, transportation and logistics. To that point, the U.S. Infrastructure ETF (BATS:PAVE) holds substantial groups of stocks across the materials, utilities, industrials and energy sectors. With that in mind, here are seven of the most promising infrastructure stocks for 2022:
- Enbridge (NYSE:ENB)
- Eastman Chemical (NYSE:EMN)
- U.S. Steel (NYSE:X)
- Grupo Aeroportuario del Pacifico (NYSE:PAC)
- Grupo Aeroportuario del Centro Norte (NASDAQ:OMAB)
- Great Lakes Dredge & Dock (NASDAQ:GLDD)
- Insteel Industries (NYSE:IIIN)
Infrastructure Stocks to Buy: Enbridge (ENB)
Enbridge is one of the largest midstream energy companies in North America. While Enbridge may not be a household name in the U.S., it’s a blue chip in Canada and is the sixth-largest holding in the overall Canadian stock market index.
Enbridge controls more than 17,000 miles of crude oil pipelines across Canada and the United States. The company delivers more than 3 million barrels of oil per day and is responsible for transporting 40% of all oil imports into the United States. If you want to own hard infrastructure, Enbridge is one of the biggest packages available under one corporate umbrella.
The main appeal to ENB stock is its high dividend. Shares trade around 16x forward earnings and Enbridge distributes the lion’s share of earnings to its shareholders; ENB stock currently yields almost 7% annually.
Given the current situation with environmental concerns and increasing political regulation, it’s nearly impossible to build new pipelines in North America. This makes the ownership and maintenance of existing pipelines more important than ever. It’s not a glamorous industry, but oil and gas pipelines are here to stay and Enbridge is one of the giants in its field.
Eastman Chemical (EMN)
Eastman Chemical is a specialty chemical firm that is, believe it or not, the successful spin-off of Eastman Kodak. While former photography giant Kodak failed to navigate the transition to the 21st century successfully, spin-off EMN stock has been a solid long-term winner. $10,000 invested in Eastman Chemical in 2002 would be worth more than $115,000 today even as its former parent went bust.
The chemical firm makes a variety of hard-to-pronounce compounds for a laundry list of industrial applications. As it relates to infrastructure, Eastman has a large business in chemicals for housing, automobiles, energy, and agricultural uses. If you’re bullish on those sorts of end cases — which encompass a huge piece of the overall economy — EMN stock should do well.
For now, Eastman shares are selling around 13x current-year earnings. And analysts see roughly 8% earnings growth in both 2022 and 2023, offering upside to an already attractive starting point. The company also offers a generous dividend and share buyback policy with its cash flows.
Infrastructure Stocks to Buy: U.S. Steel (X)
U.S. Steel is a leading steel producer. It operates in three main segments: Flat-rolled steel, tubular products and its European steel division.
X stock has been a horrendous long-term performer; shares went for around $25 each in the year 2000 and are at that figure once again today. However, as a cyclical stock, U.S. Steel shares occasionally offer tremendous gains. In 2007, the stock shot up to a peak of $200 before collapsing during the financial crisis.
Once again, X stock has been on the move. That’s in large part due to the firm’s sensational earnings. When full-year 2021 results are finalized, U.S. Steel is likely to have earned at least $14 per share in a single year. This amounts to a P/E ratio of — and this not a misprint — 1.8 times.
A sub-2 P/E ratio stock might seem like the cheapest thing in the world. Alas, 2021’s earnings are unlikely to repeat, as steel prices normalize and demand drops from cyclical peak levels. Still, analysts see the company putting up another $10 per share in 2022 and $3 in 2023, which are still attractive numbers on a $25 stock. And if the infrastructure agenda or some other factor keeps earnings at 2021 levels longer than analysts figure, X stock could explode to the upside.
Grupo Aeroportuario del Pacifico (PAC)
Grupo Aeroportuario del Pacifico is a leading international airport operator. It is primarily known for its Mexican airports. These include the big city airport of Guadalajara, leading manufacturing hub Tijuana, and tourist resorts such as Puerto Vallarta and Los Cabos. In addition, it operates airports for the Caribbean island of Jamaica.
Pacifico has been a massive winner in the pandemic recovery period. Mexico has had some of the lightest Covid-19 restrictions in the Americas, allowing traffic to surge at its tourist locations such as Cabos. Cabos, for example, is now reporting traffic 15% above comparable-month 2019 levels.
It’s hardly just that, either. Tijuana’s traffic is up double-digits from pre-pandemic levels as well as the industrial border city has boomed in recent months. With supply chains out of Asia looking shaky, manufacturers are routing as much of their workload to nearby Mexico as possible. More on that in a second.
As for PAC stock, despite hitting new all-time highs, it’s actually still at a discount to its historical EV/EBITDA multiple. And with EBITDA tending to grow at a mid-teens annual rate historically, PAC stock should offer shareholders generous growth in coming years.
Infrastructure Stocks to Buy: Grupo Aeroportuario del Centro Norte (OMAB)
Pacifico isn’t the only publicly-traded airport operator. In fact, there are two more in Mexico alone. Centro Norte is another that jumps off the screen as an infrastructure leader. It operates airports in the industrial northern region of Mexico, including key airports near the Texas border such as Monterrey, Ciudad Juarez and Reynosa.
Bloomberg recently profiled Juarez in particular, highlighting how it has become a leading boomtown in the post-pandemic era. Thanks to nasty logistics delays at U.S. ports such as Los Angeles, firms are scared to import goods from China and other far-flung locales. Plus, with the newly revised United States-Mexico-Canada (USMCA) (formerly NAFTA) trade agreement, Mexico is more integrated into the regional economy than ever.
As a result, U.S. and Canadian firms are rushing to put new factories in Juarez, Reynosa and other Mexican border cities. Centro Norte, in turn, operates the airports that service these cities. With factories sprouting up and new workers moving in to service these plants, it should lead to a boom in both passenger traffic and freight cargos in coming years.
Meanwhile, OMAB stock is still trading roughly 30% below to its historical EV/EBITDA multiple, traffic is nearly back to 2019 levels and the company is offering investors a special 8% cash dividend in 2022.
Great Lakes Dredge & Dock (GLDD)
Great Lakes Dredge & Dock is the country’s largest dredging company. It clears out the waterways around harbors, ports, coastal channels and so on. It primarily operates in the U.S., but has also served on projects in far-flung locations such as Brazil and Qatar. Great Lakes Dredge & Dock has also been in business since 1890, giving it massive domain expertise within its niche.
The company struggled with profitability in the mid-2010s but has showed strongly rising contractual project activity, earnings and gross margins since 2019.
2020 was a big year for contract bookings, and the infrastructure bill should give the company another push. Analysts see the stock at 15x 2022 earnings and 13x 2023 earnings.
Infrastructure Stocks to Buy: Insteel Industries (IIIN)
As you can guess from the name, Insteel is also in the steel industry. However, it gives investors a different angle than U.S. Steel. That’s because Insteel is specialized in certain products primarily used for constructing buildings, bridges and other hard infrastructure assets.
The company’s slogan is “Reinforcing America,” as it is the largest producer of steel wire reinforcing products for concrete construction applications. Despite being a fairly small company with a sub-$1 billion market capitalization, Insteel also has more than half a dozen manufacturing facilities across the United States. That makes it a good play if “Made in America” buying sentiment grows.
Rounding out the positive picture, IIIN stock is attractively priced. Shares are currently trading for less than 12x estimated 2022 earnings. That’s a bargain in today’s market.
On the date of publication, Ian Bezek held a long position in ENB, EMN, PAC and OMAB stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.