The infrastructure spending narrative is getting tired. For two years, every analyst has been saying “buy construction stocks because of the infrastructure bill!” and for two years, the results have been… mixed. The Bipartisan Infrastructure Law is real, but so are 30% tariffs on materials and a housing market that’s getting shaky.
So, what’s actually working? The money isn’t flowing where everyone expected. Instead of a broad lift for the whole sector, we’re seeing a clear split: the companies selling heavy equipment for massive projects are crushing it, while the ones tied to residential housing are starting to sweat. December is about picking your spots, not just buying the sector.
Caterpillar (CAT): The Obvious Winner
Sometimes the obvious play is the right one. Caterpillar’s stock is up over 60% since February, and it’s not slowing down. They just hosted an investor day talking about the next 100 years, and analysts are scrambling to upgrade their price targets – Argus just bumped theirs to $625.
Caterpillar (CAT)
Why is it working? Because the big money from the infrastructure bill is finally hitting the ground. We’re talking about massive, multi-year projects – bridges, highways, data centers – that require fleets of heavy machinery. CAT is the undisputed king here. They’re not worried about mortgage rates or homebuilder sentiment. They’re selling the big yellow iron that moves mountains, and business is booming.
This isn’t a secret, and the stock’s had a huge run. But the momentum is real, and the infrastructure spending is just getting started. I’m not chasing it here, but if you’re already in, I wouldn’t be in a hurry to sell.
Deere & Company (DE): The Agricultural Headwind
Deere is a different story. While they also make construction equipment, their bread and butter is agriculture, and that market is weak right now. Fiscal 2025 earnings are expected to be down nearly 30% from last year. That’s a big hit.
Deere & Company (DE)
The stock has held up surprisingly well, but you have to ask yourself if you want to be in a company facing those kinds of headwinds. The infrastructure play is a sideshow for Deere, not the main event. If you want exposure to construction, there are better, more direct ways to get it.
I’m on the sidelines with Deere. The agricultural cycle will turn eventually, but I’m not willing to wait it out when there are better opportunities elsewhere.
The Homebuilders: A Mixed Bag
This is where it gets tricky. Homebuilder sentiment is in the gutter (the NAHB index is at 38, anything below 50 is negative), and companies are starting to cut prices. That’s not a great sign for the housing market.
But then you have companies like Installed Building Products (IBP), which is up 41% this year. How does that happen?
Installed Building Products (IBP)
IBP doesn’t build houses. They install insulation, garage doors, and other products in new and existing homes. They’re less exposed to the whims of the housing market and more tied to the overall level of construction and renovation activity. It’s a smarter, more diversified business model, and it’s working.
I’m not a huge fan of the homebuilders right now, but if you’re going to play in this space, look for companies like IBP that have a bit of a moat. The pure-play homebuilders are in for a tough winter.
What I’m Actually Doing
I’m sticking with the industrial and heavy equipment plays. The infrastructure money is real, and it’s flowing to the big guys. I’m less enthusiastic about anything tied to residential construction until we see some signs of life in the housing market.
I’m also keeping an eye on companies that supply materials for these big projects. Think aggregates, cement, and steel. That’s where the next wave of infrastructure spending will show up.
For now, the construction trade is all about picking your spots. Don’t just buy the sector – buy the companies that are actually benefiting from the money being spent.
Disclaimer: This is not investment advice. I own positions in some of these companies. Do your own research.
