US infrastructure stocks to watch on Trump’s $1tn stimulus boost US infrastructure stocks to watch on Trump’s $1tn stimulus boost US infrastructure stocks to watch on Trump’s $1tn stimulus boost

US infrastructure stocks to watch on Trump’s $1tn stimulus boost

Equities 5 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  In today's equity note we show a basket of 30 US construction related stocks that could benefit from the potential new $1trn infrastructure plan by the Trump administration. This basket of stocks is high beta to the S&P 500 but has historically outperformed S&P 500. The basket has a lower net-debt-to-EBITDA than the market highlighting the industries' prudent financial management and valuations are generally in line with the market.

Last week’s rout in US equity markets was particular tough with US infrastructure related stocks down 9.6% but this week the group has staged a 3.4% comeback on the news that the Trump administration is preparing a $1trn infrastructure plan to boost the economy. We have created a basket of 30 US construction related stocks across different industries that could get a boost from such an infrastructure plan.

NameSectorIndustryMkt. Cap.Return YTD (%)EV/EBITDANet-debt-to-EBITDAChg. Est. EPS 1m (%)
Johnson Controls International plcIndustrialsBuilding Products25,819-13.413.61.3-0.2
Carrier Global CorpIndustrialsBuilding Products18,406N/AN/AN/A0.3
Masco CorpIndustrialsBuilding Products12,7291.
Lennox International IncIndustrialsBuilding Products8,608-7.414.32.1-0.1
Fortune Brands Home & Security IncIndustrialsBuilding Products8,629-3.512.02.3-0.3
A O Smith CorpIndustrialsBuilding Products7,7231.714.6-0.31.9
Trex Co IncIndustrialsBuilding Products6,94033.530.00.30.6
Owens CorningIndustrialsBuilding Products6,016-13.625.32.22.3
AZEK Co Inc/TheIndustrialsBuilding Products4,507N/AN/A6.0N/A
Armstrong World Industries IncIndustrialsBuilding Products3,630-18.910.10.8-0.5
Simpson Manufacturing Co IncIndustrialsBuilding Products3,6515.114.2-0.50.0
Advanced Drainage Systems IncIndustrialsBuilding Products3,48329.1131.43.124.0
Jacobs Engineering Group IncIndustrialsConstruction & Engineering11,077-4.816.01.90.4
AECOMIndustrialsConstruction & Engineering6,227-9.819.71.72.2
Quanta Services IncIndustrialsConstruction & Engineering5,299-
EMCOR Group IncIndustrialsConstruction & Engineering3,426-
MasTec IncIndustrialsConstruction & Engineering3,165-
Valmont Industries IncIndustrialsConstruction & Engineering2,404-
Caterpillar IncIndustrialsMachinery69,057-
Illinois Tool Works IncIndustrialsMachinery53,863-4.415.81.6-1.5
Deere & CoIndustrialsMachinery48,452-
PACCAR IncIndustrialsMachinery25,746-5.06.1-1.22.0
Otis Worldwide CorpIndustrialsMachinery24,898N/AN/AN/A-0.1
Cummins IncIndustrialsMachinery25,261-
Fortive CorpIndustrialsMachinery22,967-10.619.42.90.3
Stanley Black & Decker IncIndustrialsMachinery21,078-16.614.12.55.7
Dover CorpIndustrialsMachinery14,013-14.712.62.10.0
Ingersoll Rand IncIndustrialsMachinery12,239-19.944.05.40.5
Xylem Inc/NYIndustrialsMachinery11,948-
IDEX CorpIndustrialsMachinery11,543-10.417.90.8-0.3

Source: Bloomberg and Saxo Group

The basket as a whole is down 8% year-to-date on an equal-weighted basis which is in line with the S&P 500. These construction related stocks have generally a low market capitalization except for the machinery companies which are most likely more global in their business footprint. The average net-debt-to-EBITDA is only 1.6x compared to 1.9x for the S&P 500 indicating a lower leverage which means lower default risk all things equal. The basket’s equal-weight valuation is equal to the S&P 500 if Advanced Drainage Systems is excluded from the calculation. The blended 12-month EPS estimates are up on average 1.5% the past four weeks which also mimics the S&P 500. If the Trump administration’s infrastructure plan materializes we would expect estimates to drastically improve.

An alternative to our custom basket is the Invesco Dynamic Building & Construction ETF (PKB:arcx) which holds 30 US-listed companies engaged in providing construction and related engineering services for building residential/commercial/industrial properties, or large infrastructure projects.

Measured since 1 January 2015 our basket of 30 stocks (equal-weighted) has done better than the S&P 500 but with a higher beta which makes sense since this industry is pro-cyclical. The high downside beta is also evident in the fact that this group of stocks experienced a 70% drawdown compared to only 32% in the S&P 500.

Besides the potential infrastructure plan by the Trump administration the current Fed policy has pushed down interest rates including the US 30-year fixed mortgage rate which hit a record 3.13% for the week ending 18 June. This is a direct positive factor for the construction sector and as such should help lift earnings and the outlook for these stocks.


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