Last year Congress approved the most significant investment in the nation’s infrastructure in decades. There’s funding for cybersecurity, clean water, and waste treatment systems, broadband internet connections, and more.
The bill puts about $240 billion toward building or rebuilding roads, bridges, public transit, airports, and railways. More than $150 billion is slated for projects that address climate change, like building electric vehicle charging stations, upgrading energy grids and production to work better with renewables, and making public transit more environmentally sustainable.
With the largest investment in the nation’s infrastructure in decades on the horizon, you may be wondering which companies will be the beneficiaries of the extra spending?
In this article, we’ll take a look at some of the companies that are best positioned to benefit from infrastructure spending over the next three years.
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One of the companies best positioned to benefit from the upcoming flood in infrastructure spending over the next three years is Eaton Corp (ETN). Eaton doesn’t generate power, and it’s not a pure-play on green energy like some of the other best “green infrastructure stocks.” But, as a major supplier of electrical components and systems, it is absolutely an indirect play on this fast-growing industry and one that is likely to thrive irrespective of the inevitable booms and busts we’ll see in the coming years. The wind and solar farms popping up around the country need to be incorporated into the national grid, and that’s precisely what Eaton does.
Eaton is a power management company with a 109-year history. It has been listed on the NYSE for 97 years and has paid a dividend every year since 1923. That’s remarkable consistency in an industry that has undergone tremendous changes over the past century, which is a significant selling point of this stock.
Many of the high-flying stocks in alternative energy might or might not be around a decade from now. This is still very much the wild west. But Eaton almost certainly will be, supplying the survivors with power systems and software and integrating them into the grid.
ETN currently sports a 2.1% dividend yield. There are 15 Buy ratings for the stock, 9 Hold ratings, and 1 Sell rating.
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Martin Marietta Materials (MLM) is engaged principally in the building materials business, including aggregates, cement, ready-mixed concrete, and asphalt and paving product lines. The aggregates product line is sold and shipped from a network of more than 270 quarries and distribution facilities in 26 states, Canada, the Bahamas, and the Caribbean Islands. The cement, ready-mixed concrete, and asphalt and paving product lines are located in strategic, vertically integrated markets, predominantly Texas and Colorado. Building materials are used to construct highways and other infrastructure projects and in the non-residential and residential construction industries. Aggregates and cement products are also used in the railroad, agricultural, utility, and environmental industries. The Company also has a Magnesia Specialties business that manufactures and markets magnesia-based chemical products used in industrial, agricultural, ecological applications, and dolomitic lime.
MLM’s share price is down 13% so far this year, and the analysts agree that the stock has growth on the horizon. A median consensus price of $525 represents a 28% increase from where the stock closed on Wednesday. Of 21 analysts offering recommendations for MLM, 12 rate the stock a Buy and 8 rate it a Hold, and 1 gives it a Sell rating.
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If a boom in infrastructure spending is on the horizon, it’s hard to avoid Caterpillar (CAT), the world’s leading construction and mining equipment maker. The company also makes diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. Caterpillar is a cyclical business that tends to boom and bust to the tune of the broader economy.
Caterpillar is not purely a play on American infrastructure, of course. In fact, over half of its sales are now generated outside North America — which has helped its performance throughout the pandemic. Caterpillar continues to expand its manufacturing capabilities and product offerings in China, which is one of its hottest growth regions right now. The company has a robust global presence and should benefit from a recovery in emerging markets as well.
Even without the infrastructure bill, Caterpillar is forecasting that 2022 will be a year of growth as dealer inventories begin to rise and the company prepares for an upswing in the business cycle.
With over 25 years of consecutive annual dividend raises, Caterpillar has proved its resilience through complex market cycles. Shares of Caterpillar have cooled down considerably as Wall Street buckles in for what could be record revenue and earnings in the coming years. With a 2.06% dividend yield and plenty of growth prospects, Caterpillar’s stock is one to watch.
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Communication service cloud and software provider Calix Inc (CALX) seems likely to benefit significantly from the over $150 billion in broadband stimulus spending over the next three years. Calix customers include SCTelcom, Verizon, ALLO Communications, CityFibre, Nex-Tech, Gibson Connect, ITS Fiber, Canadian Fiber Optics, Sogetel, and over 1,400 other communications service providers globally, the majority being in North America.
The company has continued to show strength despite persisting supply chain disruptions and even increased inventory in the fourth quarter to improve responsiveness to its growing customer base. CALX is an asset-light business that outsources much of its manufacturing and warehousing to third parties. This strategy has allowed the company to stay nimble amidst supply snags and rising prices without passing the cost along to its customers.
Calix’s customer retention was off the chart in 2021, which translates to more predictable income. In 2021 recurring revenue increased 76% year-over-year to $125 million. That number is up from a 23% YOY increase in 2021. Thanks to the company’s subscription-based business model, competitive pricing, and customer satisfaction, that trend seems likely to continue over the next three years at least.
The company sees revenue increasing about 9% YOY in the first quarter of 2022, well in line with its target range of 5 to 10% for annual revenue growth. Compared to the year-ago quarter, cash and investments increased by $70.5 million primarily due to positive free cash flow of $46.3 million – yet another trend the company expects to continue in the coming years.
CALX garners a Buy rating from the 8 analysts covering the stock and a median price target of $60, representing a 51% increase from where the stock closed Wednesday.
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