Kind of like the stocks of Apple, the stocks of companies that provide infrastructure go through cycles of peaks and valleys. There will be years where construction is low and there isn't much demand for new edifices -- culminating in results not too far removed from the state of the construction industry during the pandemic. But then, there will be times where the entire planet seems to be going through an infrastructure boom, new roads, bridges, highways, and buildings being erected left to right.
The Best Construction Stocks
Many believe the time of another infrastructure boom is upon us soon. The pandemic, for many, appears to be in its final phases and once the restrictions are completely lifted, the construction industry will scramble to repair existing structures or erect new and modern ones.
Being ready for the outcome is only good business acumen. But to fully benefit from it as an investor, you'll need to know which stocks stand to gain the most.
That's why below, we have narrowed down a list of the 10 best construction stocks to buy this year:
1. Caterpillar Inc. (NYSE: CAT)
Market value: $114.4 billion
Dividend yield: 2.0%
A no-brainer in terms of the companies that stand to benefit the most from an infrastructure boom, Caterpillar is a notable maker of construction and mining equipment that's known the world over. They basically make everything you'll need to execute an infrastructure project.
Even now, the company is posting stellar reports which are exciting analysts and investors alike. Share prices have soared by nearly 130% since March of last year. As emerging markets recover from the effects of 2020 and begin to invest in the building of infrastructure, it will be a must for investors to keep an eye on the company's trajectory.
2. Deere & Company (NYSE: DE)
Market value: $115.2 billion
Dividend yield: 0.9%
Though the company is mainly known as a manufacturer of tractors and farming equipment, it actually has a big hand in producing construction and forestry equipment. Specifically, they make equipment used in earthmoving and roadbuilding -- things in need of major repairs once restrictions on mobility are lifted and workers can make repairs.
The diverse set of offerings should put investors' hearts at ease as it means the company has a wide pool of income to draw from. The company earned a very healthy $9.2 billion in sales in 2020. And more than two-thirds of that was specifically sales of road-building and construction equipment. They also offer a nice little dividend deal for income investors to enjoy too.
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3. United Rentals, Inc. (NYSE: URI)
Market value: $24.1 billion
Dividend yield: N/A
Once the infrastructure boom takes full effect, the rate of equipment rentals will go through the roof. After all, it's much cheaper to rent the equipment for a project rather than buy equipment that you're gonna have to liquidate later once the project is complete.
That is why the stocks of equipment rental company, United Rentals, should be highly considered by investors. The company operates a network of 1,165 rental locations, 1,018 of which are in the United States, and it runs two segments: General Rentals and Trench, Power and Fluid Solutions. Shares are currently up 44% year-to-date.
4. ChargePoint Holdings Inc (NYSE: CHPT)
Market value: $8.3 billion
Dividend yield: N/A
With the electrical vehicle ambitions between the US and China and the continued shift towards sustainable transport occurring in the greater EU, investing in a company that constructs charging stations for electric vehicles is as good an investment in the infrastructure industry as any.
ChargePoint stands to benefit from this development as a builder of charging stations -- having already provided 90 million charges and claiming 60% of the Fortune 50 companies as clients. The only downside that some investors might find is the lack of any dividends.
5. Oshkosh Corp (NYSE: OSK)
Market value: $7.9 billion
Dividend yield: 1.1%
Infrastructure development does not just mean roads and bridges. The military too will need a much-needed upgrade; meaning good business for the manufacturers of military and emergency responders' equipment and vehicles.
One such company is Oshkosh, the recent winner of a contract to produce 165,000 new mail trucks, a significant percentage of which will be electric vehicles. The company is known as a builder of mail and specialty trucks, including everything from heavy military vehicles to firetrucks.
And if that's not enough to prove to investors that the company stands to gain from the planned construction programs, Oshkosh also makes vehicles for heavy construction projects. These include cement mixers, truck-mounted cranes, and "cherry pickers" and other hydraulic lifting systems.
6. Freeport-McMoRan Inc (NYSE: FCX)
Market value: $53.5 billion
Dividend yield: 0.4%
You might be asking how does a copper miner stands to benefit from an infrastructure boom? Well, the answer to that is simple: copper is a metal prominently used in construction as the preferred material used in mining.
Investing in construction should also push you to look at other segments of the market that are positively affected by rapid it Freeport-McMoRan, specifically, is one of the world's largest and best-run copper miners which is not only is used in electrical wiring but is a major component in the manufacturing of electric vehicles too.
7. Brookfield Infrastructure Corporation (NYSE: BIPC)
Market value: $2.9 billion
Dividend yield: 3.1%
The largest diversified infrastructure stock in the world, investing in the company is an easy, direct investment in the coming construction projects. Brookfield is an underrated company with investments in operations spanning utilities, transportation, energy, and even data infrastructure.
Analysts have lauded the company's commitment to investors by providing a high dividend. They also target a long-term return on equity of 12% to 15% and annual dividend growth of 5% to 9%, well ahead of the rate of inflation.
8. Crown Castle International Corp (NYSE: CCI)
Market value: $84.0 billion
Dividend yield: 2.7%
Another infrastructure plan that investors should look out for is the expansion of broadband to more places. This means that companies that specialize in the building or owning of cell towers stand to earn the most, especially with the push towards 5G internet.
Crown Castle is one such company and, currently, owns about 40,000 cell towers and around 80,000 route miles of fiber supporting around 80,000 small cells. Future desires to make broadband more accessible to the rest of the world, as well as the updating of the infrastructure already in place to accommodate 5G, means there's a lot of potential on Crown Castle's horizon. Capitalizing on the internet expansion trend will surely mean investing in a few Crown Castle stocks.
9. Eaton Corporation PLC (NYSE: ETN)
Market value: $66.53 billion
Dividend yield: 1.8%
Green energy is likely to be a driving goal of many future infrastructure plans. The move towards clean, sustainable energy gets only stronger with each passing year.
Though investing in Eaton is not an investment in a green energy builder/provider, the electrical components and systems provider will gain from such projects. They're the ones who will likely be responsible for connecting the solar farms, wind farms, hydrogen fuel plants to the greater electrical grid. The electricity management company has been around for almost a century and, although stock prices took a hit in 2020, future projections for the company are optimistic amid the numerous utility projects planned
10. Global X U.S. Infrastructure Development ETF (NYSE: PAVE)
Assets under management: $4.1 billion
Dividend yield: 0.4%
Expenses: 0.47%, or $47 annually on every $10,000 invested
With an infrastructure ETF, you're not investing in just one construction stock but all of it at once. According to the company itself, their main approach for the future is to seek "to invest in companies that stand to benefit from a potential increase in infrastructure activity in the United States,". Their investments also include industries dealing in raw materials as well.
As far as track records go, few construction ETFs can hold a candle. Global X has interests in over 100 infrastructure stocks and gives a tolerable expense ratio of 0.47%. They are very large for an ETF with assets of $4.1 billion.
Bottom Line
And that was the list of the top 10 construction stocks to buy this year. We certainly hope it was of great help to you in forming your future investment decisions. Capitalizing on the upcoming demand for bigger, better infrastructure should definitely be a part of a diverse portfolio.
That being said, there's no substitute for due diligence and research into the market projections. Be smart with your investments and take the utmost caution; no matter how attractive a stock might be, no company offers 100% freedom from risk. Much like what the companies on this list does, a good portfolio that gives maximum returns on investment is the result of the laying of strong foundations, erecting sturdy support beams, and ensuring the overall structure has the capability of weathering the elements and withstand the test of time.
