Infrastructure firms face the drag of high commodity prices.
The stock market is in a very different place now than in November, when President Joe Biden signed a $1.2 trillion infrastructure upgrade bill. The S&P 500 had set a string of all-time highs amid enthusiasm about the global economic recovery from the pandemic. Now the index is nearly 1,000 points below that mark, as inflation bites and investors fear that the Federal Reserve’s attempts to rein in rising prices could send the economy into a recession. So far this year the industrials and materials sectors are each down roughly 20% through July 18. “Infrastructure stocks are currently bracing for the impact of high commodity prices, coupled with an increasing interest rate scenario that compresses margins even further,” says Uri Gruenbaum, CEO of TipRanks. “A majority of the companies are trading at poor valuations, below their five-year averages, which presents a bargain buying opportunity.” In light of those conditions, here is a look at seven infrastructure stocks to consider.
Martin Marietta Materials Inc. (ticker: MLM)
Only a fraction of the $1.2 trillion in spending authorized by the infrastructure legislation has been spoken for, Gruenbaum notes. In May, the White House said it had released more than $110 billion to upgrade roads, ports and pipes, and expand high-speed internet. That leaves much more to be spent. “This translates into a massive opportunity for infrastructure companies to gain from the legislation in the future,” he says. One of these companies is Martin Marietta, “a leading building materials supplier, providing aggregates including crushed stone, sand and gravel through its network of quarries and distribution yards, which are used in both residential and commercial projects,” he says. The stock has lost roughly 30% this year through July 18, but an average of 12-month price targets from eight analysts provided by TipRanks comes in a $408, which would be a 28% gain over July 18’s closing price of $314.40.
Caterpillar Inc. (CAT)
Heavy construction equipment from this large manufacturer will likely form a crucial part of any national infrastructure revamp. “Should the momentum in infrastructure spending pick up the pace, Caterpillar will surely continue to churn out solid profits and reward shareholders with higher returns,” Gruenbaum says. Beyond share price appreciation, he points to Caterpillar’s strong history of increasing dividends. The stock has lost roughly 16% this year through July 18, but an average of 12-month price targets from 16 analysts provided by TipRanks comes in a $225.87, which would be about a 30% gain over its latest closing price of $173.49.
Crown Castle International Corp. (CCI)
Within the infrastructure spending package, $65 billion is earmarked for expanding high-speed internet service through investment in broadband infrastructure deployment. “CCI stands to benefit the most from this 5G connectivity shift, which aims to provide high-speed internet to consumers nationwide, even in the remotest areas,” Gruenbaum says. This real estate investment trust owns, operates and leases more than 40,000 cell towers and more than 80,000 miles of fiber optic cable in every major U.S. market. The stock has lost about 19% this year through July 18, but an average of 12-month price targets from 10 analysts provided by TipRanks comes in at $195.20, which would be a 15% gain over its latest closing price of $170.13.
American Tower Corp. (AMT)
American Tower is another real estate investment trust that is well positioned to benefit from broadband expansion. The company has about 43,000 wireless towers across the U.S., with many in suburban and rural areas. For that reason, American Tower seems primed to capitalize on the push to deliver broadband service in more remote areas. The company also has a broad footprint outside North America, with more than 176,000 international towers that are typically clustered around key population centers. So its growth trajectory isn’t solely predicated on expansion in the U.S. The stock has lost about 14% this year through July 18, but an average of 12-month price targets from 10 analysts provided by TipRanks comes in at $289.40, which would be a 16% gain from its latest closing price of $249.25.
Plug Power Inc. (PLUG)
Before the infrastructure bill passed, this maker of hydrogen fuel cells and electrolyzers, which separate water into hydrogen and oxygen, already seemed to be well positioned for growth in demand for hydrogen-powered vehicles. The legislation’s support for the “development, demonstration and deployment of cutting-edge clean energy technologies to accelerate our transition to a zero-emission economy” could help the stock more. The stock has lost 42% this year through July 18, but an average of 12-month price targets from 14 analysts provided by TipRanks comes in at $33.62, which would be a 105% gain from its latest closing price of $16.42.
Cemex (CX)
In addition to inflation trends being a risk for infrastructure stocks, “there is the lingering fear of a recession, which may cause a temporary pause on all projects as both public and private companies decide to withhold spending,” Gruenbaum says. That doesn’t bode well for demand for cement, a key material for construction. Indeed, shares of Mexico-headquartered Cemex, which also produces other construction materials including concrete, are down about 43% through July 18. But the economic cycle will eventually come ’round again, meaning Cemex’s share price now might be a good entry point. An average of 12-month price targets from four analysts provided by TipRanks comes in at $6.30, which would be a 62% gain from CX’s latest closing price of $3.88.
Freeport-McMoRan Inc. (FCX)
Copper is another crucial construction material, as it is widely used for piping and wiring, and Freeport-McMoRan is one of the world’s biggest producers of the industrial metal. Beyond traditional construction, copper is also expected to be in high demand as the nation attempts to build more green energy sources such as wind and solar farms, battery storage systems and electric vehicles, all of which use copper. The stock has lost about 33% this year through July 18, but an average of 12-month price targets from 14 analysts provided by TipRanks comes in at $40.15, which would be a 46% gain from its latest closing price of $27.42.
7 infrastructure stocks that could build momentum:
— Martin Marietta Materials Inc. (MLM)
— Caterpillar Inc. (CAT)
— Crown Castle International Corp. (CCI)
— American Tower Corp. (AMT)
— Plug Power Inc. (PLUG)
— Cemex (CX)
— Freeport-McMoRan Inc. (FCX)
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7 Infrastructure Stocks to Buy Now originally appeared on usnews.com
Update 07/19/22: This story was published at an earlier date and has been updated with new information.
