Despite their disagreements (real or imagined) on almost everything, Democrats and Republicans alike love infrastructure projects. These are easy wins for Congressional leaders seeking re-election. And they typically spur job creation, which contributes to economic growth.
With that in mind, it’s ironic that, in the last four years, the United States Congress did not pass an infrastructure bill.
Nevertheless, even with (and maybe because of) the gridlock that looks to be in the country’s future, the infrastructure looks to be on the front burner again. The economic recovery is still far from complete. Unfortunately, neither are America’s roads, energy grid, telecommunications systems, and the like. That means that it would seem like a good policy for a Biden administration to look at an infrastructure bill.
Biden will be under pressure to endorse the $1.5 trillion infrastructure package that the Democrat-controlled House of Representatives passed in July. But the package may need to be tweaked a bit since it currently includes climate change initiatives that have kept the bill from advancing through the Senate.
However, it appears that the economy will need some significant juice after whatever this winter brings in terms of the virus. And if calmer heads prevail (we can always hope), there may be a major infrastructure bill to stimulate job creation. And we’ve identified seven stocks that should bear watching if this comes to pass.
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- NV5 Global
- Advanced Drainage Systems
- Trimble
- American Tower
- Union Pacific
- NextEra
- United Rentals
#1 - NV5 Global (NASDAQ:NVEE)
As infrastructure stocks go, NV5 Global (NASDAQ:NVEE) is not a pure-play stock. Rather, infrastructure is just one of several “verticals” (i.e., business units) that the company is involved in. In terms of infrastructure, the company has broad-based expertise that helps clients “develop sustainable solutions beyond code compliance design.” In general, the benefit to its clients is the ability to reduce the cost of its projects.
With a stock that’s up nearly 35% year-to-date, there is some concern that the stock may be overvalued. However, if you take a “what have you done for me lately” approach to investing, you should be thrilled that NVEE stock is up over 18% since November 2. And the stock is up 138% since closing at its pandemic low of $29.14 on March 23. It has also successfully crossed the $60 mark, which was a point of resistance both in mid-summer and October. Is the third time the charm?
Maybe it’s the market’s way of saying they understand the stock's appeal and are signaling that it’s about to go significantly higher. If it does, it will confirm the recent buy ratings issued by two analyst firms, including Roth Capital, which just increased its price target to $82.
About NV5 Global
NV5 Global, Inc provides technology, conformity assessment, consulting solutions, and software applications to public and private sector clients in the infrastructure, utility services, construction, real estate, environmental, and geospatial markets in the United States and internationally. It operates through three segments: Infrastructure; Building, Technology & Sciences; and Geospatial Solutions.
Read More - Current Price
- $19.03
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 1 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $28.75 (51.1% Upside)
#2 - Advanced Drainage Systems (NYSE:WMS)
The next stock to consider is Advanced Drainage Systems (NYSE:WMS). Put simply, Advanced Drainage Systems supplies the industrial-grade “plumbing supplies” that assist in the building and construction industries. This has been one of the strongest performing categories since the country began re-opening.
WMS stock is up 60% for 2020 and is up 166% since closing its pandemic low of $23.59 on March 23. However, the stock is down over 10% since the presidential election. Part of the reason may be that, while the company beat revenue estimates, its bottom line below analysts’ estimates.
But that would seem to be short-sighted. After all, the company’s financials remain strong. For example, its free cash flow (FCF) sits at $257 million, which is nearly 100% higher than the $135 million of FCF it had at the same point in the fiscal year 2020. On the conference call for the company’s earnings report, management cited a 2% decrease in working capital as one reason for the increase in FCF.
What seems more likely is that the market is factoring in the possibility of more harsh mitigation efforts to contain the novel coronavirus.
About Advanced Drainage Systems
Advanced Drainage Systems, Inc designs, manufactures, and markets thermoplastic corrugated pipes and related water management products in North America and internationally. The company operates through Pipe, International, Infiltrator, and Allied Products & Other segments. It offers single, double, and triple wall corrugated polypropylene and polyethylene pipes; plastic leachfield chambers and systems; EZflow synthetic aggregate bundles; wastewater purification through mechanical aeration wastewater for residential and commercial systems; septic tanks and accessories; combined treatment and dispersal systems, including advanced enviro-septic and advanced treatment leachfield systems; and allied products, including storm retention/detention and septic chambers, polyvinyl chloride drainage structures, fittings, and water quality filters and separators.
Read More - Current Price
- $115.15
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 6 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $170.29 (47.9% Upside)
#3 - Trimble (NASDAQ:TRMB)
If you’re looking for a more technology-focused way to play the infrastructure segment, you may consider Trimble (NASDAQ:TRMB). Trimble is a hardware, software, and services company that competes in the Agriculture, Building & Construction, Geospatial, Transportation, and Natural Resource segments.
With a tagline of “Transforming the way the world works,” you’re starting with lofty expectations. Fortunately for investors, Trimble has delivered. TRMB stock has rewarded investors with a stock price appreciation of nearly 169% over the last five years. However, after hitting a point of resistance at approximately $45 per share in February, TRMB stock got trounced by the pandemic. But since that point, it’s come roaring back. And blew past that level of resistance and now sits at an all-time high.
On November 4, Trimble posted a strong earnings report in which the company beat analysts’ estimates on both the top and bottom lines. Despite that, analysts’ have a consensus price target that suggests the stock could travel lower. However, with more stimulus, a near certainty would appear to be a buy on the dip opportunity.
About Trimble
Trimble Inc provides technology solutions that enable professionals and field mobile workers to enhance or transform their work processes worldwide. The company's Buildings and Infrastructure segment offers field and office software for project design and visualization; systems to guide and control construction equipment; software for 3D design and data sharing; systems to monitor, track, and manage assets, equipment, and workers; software to share and communicate data; program management solutions for construction owners; 3D conceptual design and modeling software; building information modeling software; enterprise resource planning, project management, and project collaboration solutions; integrated site layout and measurement systems; cost estimating, scheduling, and project controls solutions; and applications for sub-contractors and trades.
Read More - Current Price
- $71.64
- Consensus Rating
- Buy
- Ratings Breakdown
- 7 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $84.86 (18.4% Upside)
#4 - American Tower (NYSE:AMT)
2021 may be the year when a real estate investment trust (REIT) becomes sexy, at least if it’s American Tower (NYSE:AMT). The company owns 180,000 cell phone towers in the United States, Europe, and select emerging markets. And that puts the company in an ideal position to capture revenue not just in the United States but in the fast-growing 5G markets in India and Brazil.
Like many 5G stocks, American Tower has had a choppy year. At the time of this writing, the stock is only up about 4%. And the stock is down almost 10% since the middle of September. Part of this may be due to the company’s inability to meet analysts’ expectations. American Tower reported earnings on November 3 and missed on the bottom line for the fourth consecutive quarter, offsetting a narrow revenue gain.
Still, the company’s business model is simple and straightforward. It has a network of towers with excess capacity and is positioned to earn revenue as 5G demand increases gradually. And with a streak of eight consecutive years of dividend increases, the stock will reward investors who are in it for the long haul.
About American Tower
American Tower, one of the largest global REITs, is a leading independent owner, operator and developer of multitenant communications real estate with a portfolio of over 224,000 communications sites and a highly interconnected footprint of U.S. data center facilities.
- Current Price
- $183.73
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $235.08 (28.0% Upside)
#5 - Union Pacific (NYSE:UNP)
When you think about infrastructure stocks, it doesn’t get much more traditional than railroad stocks. And this has been a sector that has held up well despite the effects of the novel coronavirus. Union Pacific (NYSE:UNP) has reported lighter revenue in 2020 but is trending in the right direction.
Infrastructure stocks are not growth stocks, and Union Pacific is no exception. UNP stock is up only about 10% for the year and is down about 5% since September. Some of this was based on expectations for lower earnings. The company did manage to post a beat on revenue but fell short of analysts’ profit expectations.
Analysts offer a consensus price target that suggests a 7% drop in the stock. However, the most recent analyst opinions have the stock trading at levels that would have the stock climbing 10%. Any setback due to lockdown measures would likely have an impact on the stock, but UNP stock does pay a dividend. And while it’s looking likely that the company will end its consecutive years' streak of raising its dividend at seven, the dividend still looks well supported.
About Union Pacific
Union Pacific Corporation, through its subsidiary, Union Pacific Railroad Company, operates in the railroad business in the United States. The company offers transportation services for grain and grain products, fertilizers, food and refrigerated products, and coal and renewables to grain processors, animal feeders, ethanol producers, renewable biofuel producers, and other agricultural users; and construction products, industrial chemicals, plastics, forest products, specialized products, metals and ores, petroleum, liquid petroleum gases, soda ash, and sand, as well as finished automobiles, automotive parts, and merchandise in intermodal containers.
Read More - Current Price
- $226.32
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $259.80 (14.8% Upside)
#6 - NextEra (NYSE:NEE)
NextEra (NYSE:NEE) is at the forefront of renewable energy and traditional energy markets. Renewable energy will be one of the leading stories for the next decade. But one of the urgent challenges is revamping the nation’s existing electric grid to store and distribute all the power coming from sources such as solar and wind.
NextEra is the leading competitive transmission company in North America with over 8,500 miles of assets in the United States and Canada. And the company continues to expand. Earlier this year, it completed an agreement to pay $660 million to acquire GridLiance. The company has been rebuffed in recent attempts at taking over Duke Energy (NYSE:DUK) and acquiring Evergy (NYSE:EVRG). However, NextEra is taking several bites at the apple.
The company is in the midst of selling assets to its subsidiary NextEra Energy Partners (NYSE:NEP), among others. The plan will be to raise $13 billion in cash to finance a 15 GW development project larger than the existing renewable product pipeline.
About NextEra Energy
NextEra Energy, Inc, through its subsidiaries, generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. The company generates electricity through wind, solar, nuclear,natural gas, and other clean energy. It also develops, constructs, and operates long-term contracted assets that consists of clean energy solutions, such as renewable generation facilities, battery storage projects, and electric transmission facilities; sells energy commodities; and owns, develops, constructs, manages and operates electric generation facilities in wholesale energy markets.
Read More - Current Price
- $71.67
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $87.15 (21.6% Upside)
#7 - United Rentals (NYSE:URI)
The last infrastructure stock we’re looking at is United Rentals (NYSE:URI). With the economy still in recovery mode, companies will be likely to rent equipment rather than buying. Enter United Rentals, the world’s largest equipment rental company with approximately 13% market share in the North American rental market.
United Rentals has not been unfazed by the Covid-19 pandemic. After a record $9.3 billion in revenue during 2019, the company will take a step back this year. And even on a sequential basis, the company’s revenue dipped from $1.94 to $1.86 billion.
However, this is a time when you have to look at the company’s historical performance. Between 2009 and 2019, United Rental’s revenue grew at a compound annual growth rate of nearly 15% (14.8%). That suggests that once business conditions improve, the company will be right back to growth.
Despite the ups and downs, URI stock is up 19% for the year, with most of that growth taking place since August.
About United Rentals
United Rentals, Inc, through its subsidiaries, operates as an equipment rental company. It operates in two segments, General Rentals and Specialty. The General Rentals segment rents general construction and industrial equipment includes backhoes, skid-steer loaders, forklifts, earthmoving equipment, and material handling equipment; aerial work platforms, such as boom and scissor lifts; and general tools and light equipment comprising pressure washers, water pumps, and power tools for construction and industrial companies, manufacturers, utilities, municipalities, homeowners, and government entities.
Read More - Current Price
- $722.64
- Consensus Rating
- Hold
- Ratings Breakdown
- 10 Buy Ratings, 2 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $770.71 (6.7% Upside)
Infrastructure takes many forms. There are the well-known “hard assets” like roads and bridges. The emerging 5G technology brings with it significant advances in the growth of our nation’s telecommunications industry. Not to mention the improvements that are needed to fulfill the promise of electric vehicles.
And then there’s the water and sewer infrastructure. The American Society of Civil Engineers forecasts the U.S. needs to invest $3.6 trillion into the infrastructure to get water and sewer pipes to acceptable levels.
Simply put, there’s an urgent need for action, and now that the election noise is over, infrastructure will likely draw the attention of our nation’s leaders. As an investor, infrastructure stocks may be one of the smart ways to play your transition from a Trump administration to a Biden administration. And if you’re already into some of these stocks, now may be a time to add to your positions before these stocks get more expensive.
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