Are infrastructure stocks on the brink of a new golden age? We think so.
Major investment is required to update aging U.S. infrastructure. But when will it happen and which companies will benefit? And most importantly, how can you can profit from infrastructure spending?
What is Infrastructure?
Infrastructure is all around us. It’s the networks and structures that underpin our everyday life and work. These include:
- Transportation networks in the form of roads, bridges, airports, railways and ports
- Mass transit including subways and buses
- Energy networks including power stations, pipelines and renewables
- Telecommunication networks (including 5G)
- Water and sewer networks including dams and treatment plants
- Government buildings including schools, parks and hospitals
All of these things need to be designed, constructed, maintained and repaired, and upgraded or replaced at the end of their life.
Why Invest in Infrastructure Stocks Now?
As a result of poor federal budget funding, infrastructure stocks have been out of favor. We believe it’s the right time for investors to look again. Here’s why.
U.S. Infrastructure’s Poor Report Card
In 2017, the American Society of Civil Engineers (ASCE) awarded America’s infrastructure a D+ in its most recent Report Card. The ASCE also estimated that $4.5 trillion needs to be spent on updating U.S. infrastructure by 2025 with transportation requiring the largest investment. That kind of spending doesn’t look likely. So the big questions are:
- How much will be spent in the next bill?
- Which infrastructure sectors will be prioritized?
- Which companies and stocks stand to profit?
- When will it happen?
Right now there are no concrete answers to these questions. But here’s what we do know …
$1.5 Trillion of Proposed Infrastructure Spending in the Pipeline
President Trump campaigned on a platform of more infrastructure spending. He presented a plan to Congress in 2018 but it was opposed. Although both political parties agree American infrastructure is in dire need of repair, there’s disagreement over how to finance it. We now believe it’s unlikely a bipartisan agreement will be made before the 2020 presidential election.
President Trump’s 2018 bill set out a $200 billion federal incentive to raise $1.5 trillion of funding from state, local and private investment. His focus was energy independence with a preference for fossil fuels.
In June this year, the Democrats proposed a $1.5 trillion infrastructure bill including $300 billion for bridges, $100 billion for schools, $100 billion for affordable housing, $100 billion for broadband and $70 billion for renewables.
These plans are our best guide to the likely winners after the election. If you pick well now and have patience you could be handsomely rewarded when spending is eventually agreed.
Protect against Volatility
In these volatile times, infrastructure investments can also protect your portfolio. The Volatility Index (VIX) has fallen from its highs earlier this year, but remains above its normal range of 10-20. Many infrastructure stocks offer a dividend and are stable cash generators with less downside risk, especially those with long-term contracts.
How Can I Invest in Infrastructure?
We’ve selected a diverse range of stocks from within this wide-ranging sector that we believe could benefit from the next wave of infrastructure spending. These could be the best Infrastructure Stocks to invest in in the coming years.
Fastenal (NASDAQ:FAST) operates over 2000 construction material supply stores and is definitely one to watch. The company has shown strong sales growth in recent years. With infrastructure spending on the horizon, its share price has rocketed since the market dropped in March.
Nucor (NYSE:NUE) is the largest steel producer in the U.S. It produces steel for bridges, transportation, construction, oil and gas, and power generation. Profits are stable and could increase as government tries to boost the economy and jobs through infrastructure spending. It also delivers a rising dividend of 4% so will appeal to income investors.
Vulcan Materials (NYSE:VMC) is the largest U.S. producer of construction aggregate which is used to construct highways, airports and buildings.
Engineering and Consultancy Stocks
NV5 Global (NASDAQ:NVEE) designs, implements and manages infrastructure projects. It has recorded an astounding return of around 682% for investors since its IPO. The company has just been awarded a $4 million transportation infrastructure contract in New Mexico. With transportation high on the agenda there’s scope for many more contracts. A fall in share price this month is an opportunity for investors to buy.
Aecom (NYSE:ACM) is another infrastructure consulting firm with a global reach worth considering. Current projects include a new terminal building at the Louis Armstrong New Orleans International Airport.
Fluor (NYSE:FLR) is another stock in the engineering and construction space to consider. Much of its work is in the oil and gas and mining sectors which have been in decline, but that may change.
Ericsson (NASDAQ:ERIC) and Nokia (NYSE:NOK) are the most likely beneficiaries from Huawei being removed from 5G systems in America and its allies. Between them, these two companies control 50% of the 5G infrastructure market and are already picking up more 5G contracts. A new spending package should only improve their performance.
American Tower (NYSE:AMT) is a giant in the world of cell phone towers. It has over 180,000 towers in the U.S., Europe and emerging markets. This makes it a prime candidate to profit from the coming 5G revolution and increased infrastructure spending.
Global Diversified Stocks to Hold for Stability
Brookfield Infrastructure (NYSE:BIPC)(NYSE:BIP) is a global infrastructure asset owner and operator. It has performed well since it’s inception in 2008 and aims to deliver 12–15% on equity. With a 4.6% dividend, this is a share to buy and hold for years.
Markel (NYSE:MKL) is an insurance company which invests cash from policies into infrastructure stocks rather than bonds. So this is an indirect way of investing in infrastructure. Like Brookfield, this is a long-term buy for patient investors.
Remember: Buy Before the Election
It’ll be fascinating to see how the infrastructure spending deadlock is resolved. The election may well hold the key, and it will become clear who the winners will be. The opportunity to get in early will be gone. So now’s the time to buy infrastructure stocks.