Joe Biden, the president of the United States, is now working on his second major bill after the USD1.9trillion covid relief stimulus, the infrastructure bill. What's included in this bill ? Spending on roads, railways, water systems, bridges and other structures. The bill is expected to be between USD2trillion -3 trillion . It also includes a USD300 billion for housing infrastructure and another USD300 billion on improving US manufacturing sector.
No matter what obstacles the bill faces in congress, the fact is US needs infrastructure spending which is long overdue and perhaps neglected by the Trump administration. Regardless of the tax implications of the bill and the negative effect it may have on the stock market, there are several key infrastructure blue chip companies that are always going to benefit from this. Here we take a look at several stocks from construction equipment makers to steel manufacturer that we should add in our portfolio for 2021 and 2022.
Caterpillar Inc (CAT)|NYSE|USD233.08|30th March Closing|Medium to Long Term Investment
We start with Americas most iconic construction and mining equipment company. Though this stock has been trading mostly side ways from 2017 to 2020 due to slower growth in infrastructure spending, YTD it is already up by 28% as there is an impetus now to build & upgrade roads, railway tracks, bridges, highways, etc. CAT has an expected earnings growth of almost 22% this year. The stock has moved up quite significantly of late. Investors can look to buy on short term weakness.
Honeywell International Inc (HON)|NYSE|USD218.09|30th March Closing| Medium to Long Term Investment
This is another blue chip industrial stock that probably ticks all the right boxes for Warren Buffet although his Berkshire Capital does not own this stock. Honeywell had a slow 2020 due to the pandemic and has a massive backlog of existing projects to complete in 2021 . In its 4th quarter conference call, HON , announced that their order books for building projects were piling up. Furthermore, its aviation services division is bound to see growth as commercial aviation resumes later this year in many parts of the globe. HON's safety & productivity solutions (SPS) segment saw growth in 2020 and has USD 4 billion backlog. Regardless of Biden's administration's push for infrastructure spending, Honeywell is poised for a great 2021.
Nucor Corporation(NUE)|NYSE|USD80.39| 30th March Closing| Medium to Long Term Investment
Nucor is America's largest steel manufacturer. Steel is an essential material for building and maintaining infrastructure. Nucor's steel has been used in constructing many of the airports, bridges and waterways in the US. NUE will be the largest benefactor of Biden's preference for "Buy American". In Feb this year NUE announced that they were expecting a record breaking Q1 and weeks later made another announcement saying they expect an even better Q2. The stock is up almost 20% in the last 1 week of trading.
Vulcan Material(VMC)|NYSE|USD172.23|30th March Closing|Medium to Long Term Investment
Building of roads and highways is going to be an important part of the infrastructure plan. VMC is the largest supplier of construction aggregates in America which includes sand, gravel, stone and also produces asphalt and cement; all crucial to road construction & maintenance. VMC is the leader in its space with 64 years of experience and could be another "Buy American" beneficiary.
United Rental(URI)|NASDAQ|USD330.21| 30th March Closing| Medium to Long Term Investment
URI is a construction equipment rental company that operates out 1018 different locations all across America. The increase in infrastructure development will naturally see increase in equipment rentals in 2021. Although the share price has almost doubled over the last 6 months in anticipation of major infrastructure spending during the Biden administration, there is still room for further growth. URI is perfectly poised to take advantage of the infrastructure spending due to its very strong cash flows. Its free cash flow as of 3rd quarter 2020 was USD2 billion . This will enable it to acquire more equipment fairly quickly and buy out smaller competitors who have suffered during the pandemic. Furthermore, URI managed to retain all of its employees during the pandemic which will make a positive impact when being considered for future contracts.
Global X Infrastructure Development ETF (PAVE)|NYSE|USD25.00|30th March Closing|Medium Term to Long Term Investment
Finally, we complete this segment with an ETF for those who prefer a less volatile & diversified approach to investing in the infrastructure and construction industry. This ETF includes companies like Vulcan, Deere & Co, Nucor, Union Pacific Corporation , United Rentals and more. It has seen a YTD performance of 17.8% and has potential to rise further once infrastructure stimulus is passed and projects are underway 3rd quarter 2021 onwards.
