US infrastructure stocks to watch on Trump’s $1tn stimulus boost
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.
|Name||Sector||Industry||Mkt. Cap.||Return YTD (%)||EV/EBITDA||Net-debt-to-EBITDA||Chg. Est. EPS 1m (%)|
|Johnson Controls International plc||Industrials||Building Products||25,819||-13.4||13.6||1.3||-0.2|
|Carrier Global Corp||Industrials||Building Products||18,406||N/A||N/A||N/A||0.3|
|Masco Corp||Industrials||Building Products||12,729||1.2||10.9||1.5||6.4|
|Lennox International Inc||Industrials||Building Products||8,608||-7.4||14.3||2.1||-0.1|
|Fortune Brands Home & Security Inc||Industrials||Building Products||8,629||-3.5||12.0||2.3||-0.3|
|A O Smith Corp||Industrials||Building Products||7,723||1.7||14.6||-0.3||1.9|
|Trex Co Inc||Industrials||Building Products||6,940||33.5||30.0||0.3||0.6|
|Owens Corning||Industrials||Building Products||6,016||-13.6||25.3||2.2||2.3|
|AZEK Co Inc/The||Industrials||Building Products||4,507||N/A||N/A||6.0||N/A|
|Armstrong World Industries Inc||Industrials||Building Products||3,630||-18.9||10.1||0.8||-0.5|
|Simpson Manufacturing Co Inc||Industrials||Building Products||3,651||5.1||14.2||-0.5||0.0|
|Advanced Drainage Systems Inc||Industrials||Building Products||3,483||29.1||131.4||3.1||24.0|
|Jacobs Engineering Group Inc||Industrials||Construction & Engineering||11,077||-4.8||16.0||1.9||0.4|
|AECOM||Industrials||Construction & Engineering||6,227||-9.8||19.7||1.7||2.2|
|Quanta Services Inc||Industrials||Construction & Engineering||5,299||-5.6||7.4||1.6||-0.8|
|EMCOR Group Inc||Industrials||Construction & Engineering||3,426||-27.4||6.3||0.7||-1.1|
|MasTec Inc||Industrials||Construction & Engineering||3,165||-33.1||3.8||1.3||2.4|
|Valmont Industries Inc||Industrials||Construction & Engineering||2,404||-24.5||8.6||1.6||-1.1|
|Illinois Tool Works Inc||Industrials||Machinery||53,863||-4.4||15.8||1.6||-1.5|
|Deere & Co||Industrials||Machinery||48,452||-10.1||7.4||0.5||1.5|
|Otis Worldwide Corp||Industrials||Machinery||24,898||N/A||N/A||N/A||-0.1|
|Stanley Black & Decker Inc||Industrials||Machinery||21,078||-16.6||14.1||2.5||5.7|
|Ingersoll Rand Inc||Industrials||Machinery||12,239||-19.9||44.0||5.4||0.5|
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.
Latest Market Insights
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Energy crisis could turn energy stocks into secular winnerWith long-term expected returns for the global energy sector close to 10%, we look at 40 stocks that could be set to cash in.
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.