Seven Construction Equipment Infrastructure Investments to Purchase for Increased Income and Growth

Seven construction equipment infrastructure investments to purchase may increase income and growth for investors who want to capitalize on stepped-up government spending for roads, runways, bridges and other public projects.

The seven construction equipment infrastructure investments to purchase feature stocks and funds that benefit from rising demand for new or leased big machinery, as well as power generation projects, along with agricultural and forestry endeavors. In a 220-212 party-line vote on Aug. 24, the Democrat-controlled U.S. House of Representatives approved a $3.5 trillion budget bill with the promise of a vote by Sept. 27 on a Senate-passed bipartisan $1.1 trillion infrastructure bill, quelling an open dispute about the political party’s agenda that pitted 10 centrist Democrats against House Speaker Nancy Pelosi and her leadership team.

The seven construction equipment infrastructure investments to purchase should benefit from the legislation, which includes $550 billion of increased funding for roads, bridges, expanded broadband and water system upgrades around the country to avoid situations such as the lead-leaching pipes that caused illness and deaths in my hometown of Flint, Michigan. That legislation also would reauthorize existing federal infrastructure programs.

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‘Mr. Wonderful,’ Shark Tank’s Kevin O’Leary, Predicts the Infrastructure Legislation Will Pass

“One way or another, infrastructure spending increases will pass because it has political support from both sides of the political aisle,” said Kevin O’Leary, chairman of Boston-based O’Shares ETFs.

“This kind of infrastructure spending hasn’t really happened in the U.S. since the ‘50s,” O’Leary said in a recent podcast.

In addition, broadband has become important to support the new digital economy that has “emerged out of the pandemic,” O’Leary said. Broadband surfaced as a key part of the infrastructure bill to help bring internet access to rural and other underserved areas throughout the United States.

Passage of the legislation will provide liquidity to the market, and many companies that offer infrastructure goods and services will gain additional business, O’Leary continued. Plus, it will help airport logistics and related transportation companies, he added.

Paul Dykewicz interviews Kevin O’Leary, chairman of O’Shares ETFs, about investing opportunities.

The federal budget and infrastructure legislation moving through Congress unquestionably helps the stocks and funds that feature construction equipment companies, said Bob Carlson, chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. Infrastructure investments have been recommended by Carlson during the past last few years, even before the legislation, amid an increase in upgrading or replacing crumbling roads and bridges in the United States and elsewhere, he added.

Infrastructure stocks can be a good inflation hedge, said Carlson, who also heads the Retirement Watch investment newsletter.

Pension fund and Retirement Watch chief Bob Carlson answers questions from columnist Paul Dykewicz.

Seven Construction Equipment Infrastructure Investments to Purchase Feature Caterpillar

Caterpillar Inc. (NYSE:CAT), a Deerfield, Illinois-based American Fortune 100 company that is the world’s largest construction-equipment manufacturer. designs, develops, engineers, manufactures, markets and sells machinery, engines, financial products and insurance to customers via its worldwide dealer network. The well-established company is not growing lightning fast, but it is far from fizzling out either.

BoA Global Research assigned a $223 price objective to CAT, based on 19x 2022 estimated earnings per share (EPS), topping the stock’s long-term historical range of 16-17x, due to the current low interest rate environment, above average market price-to-earnings (P/E) multiple and early stage of the construction cycle. While end-user dealer sales are stabilizing and poised to recover, the trajectory could be constrained as mining and oil & gas customers continue to favor shareholder returns rather than capital spending, BoA wrote in a recent research note.

Chart courtesy of www.StockCharts.com

Potential risks that could prevent Caterpillar from reaching the BoA price objective are a widening global coronavirus pandemic that might tilt the global economy into recession; a greater-than-expected reduction or delay in capital spending among large mining and oil and gas customers; intensifying pricing pressure in the construction and mining equipment industries; and legal risks due to current regulatory probes. Another possible problem could be any sustained deterioration of dealer sales growth.

On the other hand, possible reasons BoA gave for Caterpillar to surpass expectations include a faster-than-expected recovery in the global economy; a firming earthmoving construction equipment market; limited oil & gas contagion risk from electric power, construction and marine markets; continuing recovery in commodity prices; and stronger-than-expected demand trends in gas compression. Yet another factor could be quicker-than-expected resolution to the pandemic.

Three Picks from Market Veteran Are Among Seven Construction Equipment Infrastructure Investments to Purchase

Although BoA currently shows a “neutral” rating for Caterpillar, seasoned stock picker Jim Woods lists it as a “buy” for his Intelligence Report readers.

Paul Dykewicz meets with investing veteran Jim Woods, who heads Bullseye Stock Trader, Successful Investing and Intelligence Report.

“The economic reopening trade, also known as the reflation trade, has been felt most in cyclical and value stocks, and particularly in bellwether industrial companies,” said Jim Woods, editor of the Successful Investing and Intelligence Report, as well as the leader of the Bullseye Stock Trader advisory service. “Two of the best-run, and best-positioned industrials are Caterpillar (CAT) and Cummins Inc. (CMI). Both have strong earnings growth, yet both stocks have seen some selling since June. For long-term investors, this recent pullback represents a good buying opportunity in two stalwart dividend stocks.”

Cummins Gains Place Among Seven Construction Equipment Infrastructure Investments to Purchase

Cummins Inc. (NYSE:CMI), of Columbus, Indiana, designs, manufactures, and distributes engines, filtration and power generation products. BoA has given Cummins a “buy” recommendation and a 12-month price objective of $325, based on 14.3x 2022 estimated EPS and an assumed $3.6 billion valuation for its New Power segment.

Historically, Cummins has traded at a low- to mid-teens P/E. While some observers view BoA’s $20 EPS forecast as a peak, the investment firm wrote a recent research note predicting Cummins would rise above $20 of EPS through the next cycle when the current one eventually bottoms somewhere in the 2024 timeframe.

Chart courtesy of www.StockCharts.com

Potential risks that could stop Cummins from achieving BoA’s price objective include a disorderly spike in interest rates leading to aggressive Fed policy tightening; a hard landing for the China or North American heavy-duty truck market; and faster-than-expected full battery electric vehicle (BEV) penetration without a commensurate number of offsetting wins from Cummins.

Catalysts for the stock could come from a sustained recovery in the North American heavy duty truck cycle; positive developments in the Cummins hydrogen efforts; stronger-than-expected resilience in China’s truck market; new emission regulation; and a large, accretive acquisition.

PAVE Is the Ticker of a Fund Listed Among Seven Construction Equipment Infrastructure Investments to Purchase

“To get broad-based exposure to stocks in the infrastructure space, there is perhaps no better way than the Global X U.S. Infrastructure Development ETF (PAVE),” Woods said.

In late June, Woods recommended PAVE to subscribers in both the Successful Investing and Intelligence Report portfolios as a tactical play to take advantage of what he described as, “A major wave of infrastructure spending that will have a positive revenue impact on the biggest and best stocks in the space.”

Chart courtesy of www.StockCharts.com

Deere Gains Spot Among Seven Construction Equipment Infrastructure Investments to Purchase

Deere & Co. (NYSE:DE), of Moline, Illinois, is a manufacturer of agricultural, construction and forestry machinery, along with diesel engines, drivetrains used in heavy equipment, as well as lawn care equipment. The company received a “buy” recommendation from BoA, along with a $425 price objective, based on 20x the equipment company’s fiscal year 2022 estimated earnings per share forecast.

BoA’s target 20x price-to-earnings multiple is at a 12% premium to the average P/E during the last five and 20 years of 18x P/E. However, BoA called it justified, since Deere may be the highest quality large-cap machinery stock with both cyclical and structural tailwinds due to its position as the industry innovator in precision agriculture.

Chart courtesy of www.StockCharts.com

Potential risks to the price objective and “buy” rating that BoA assigned to Deere are the widening coronavirus pandemic that weighs on the global economy, as well as whether the used equipment market will incur a downturn and cause large residual value impairments. Other possible risks include any reversal in the extended improvement in commodity prices, as well setbacks in construction equipment coming out of Europe, where Deere has been trying to integrate the operations of Wirtgen Group, formerly a privately held international construction machinery company.

Do Not Expect Instant Riches from the Seven Construction Equipment Infrastructure Investments to Purchase, O’Brien Opines

Infrastructure projects need to go through design, engineering, permitting, approvals, etc., said Connor O’Brien, chief executive officer and president of Boston-based O’Shares ETFs. Federal spending must flow through normal channels  and will take some time before appearing as increased earnings and revenues for construction equipment infrastructure stocks.

“It is probably a 12-month or longer process before the money starts to really flow,” O’Brien said during a recent O’Shares ETFs podcast with O’Leary. “Stocks might respond early with earnings showing up with quite a delay.”

Connor O’Brien, chief executive officer and president of Boston-based O’Shares ETFs

One dividend-paying fund offered by O’Shares ETFs that could be aided a bit longer term by the boost in federal funding is O’Shares FTSE U.S. Quality Dividend ETF (OUSA). The fund is designed to track the results of publicly traded, large- and medium-capitalization, dividend-paying issuers in the United States that meet size, liquidity, quality, low volatility and dividend-yield thresholds.

Since the infrastructure spending is broad, it should lift the S&P 500 and just about sector, O’Leary opined.

Chart courtesy of www.StockCharts.com

Non-Dividend-paying Equipment Rental Company Does Not Qualify to Join Seven Construction Equipment Infrastructure Investments to Purchase

Bonita Springs, Florida-based Herc Holdings Inc (NYSE:HRI) is one of the largest equipment rental companies in North America. Herc Holdings does not pay a dividend but generated total revenues of nearly $1.8 billion in 2020 by offering its customers a diversified fleet of equipment valued at $3.6 billion through approximately 277 locations, primarily in North America.

BoA’s price objective for Herc is $160 per share, or 6.5x 2022 estimated enterprise value/EBITDA. The investment firm’s 6.5x target multiple is about one turn above the mid-point of the historical 5-6x EBITDA multiple range, which BoA wrote seems justified given the improvement in performance through the cycle versus historical comparisons. At $160 per share, the stock would still only be trading at a 50% premium to replacement cost, above the historical average of trading at or just below replacement, BoA wrote.

Chart courtesy of www.StockCharts.com

Potential risks that BoA cautioned could cause Herc to fall short of reaching the investment firm’s price objective include a double dip recession; a disorderly spike in interest rates, renewed weakness in the energy markets; slower-than-expected recovery in rental rates; and turmoil in the debt markets. Possible catalysts that could boost the stock beyond BoA’s share price estimates could come from a sharper-than-expected economic recovery or bounce in oil prices, or that the company is eventually bought as the U.S. equipment rental market consolidates.

Seven Construction Equipment Infrastructure Investments to Purchase Face Risk from COVID-19

The Delta variant of COVID-19 has wrecked havoc in recent weeks as a highly transmissible scourge that has spurred alarming warnings from public health experts about a surge in virus cases and deaths across the United States. The Centers for Disease Control and Prevention (CDC) is citing the Delta variant as the main cause of fresh spikes in cases and deaths.

However, the variant’s documented danger has led to an increase in the number of people vaccinated from COVID-19. As of Aug. 27, 202,041,893 people, or 60.9% of the U.S. population, have received at least one dose of a COVID-19 vaccine. The fully vaccinated consisted of 171,367,657 people, or 51.6%, of the U.S. population, according to the CDC.

COVID-19 cases worldwide, as of Aug. 27, totaled 215,106,535 and led to 4,480,969 deaths, according to Johns Hopkins University. U.S. COVID-19 cases reached 38,500,438 and caused 634,438 deaths. America has the dreaded distinction as the country with the most COVID-19 cases and deaths.

The seven construction equipment infrastructure investments to purchase are worth weighing by those who seek income and share-price appreciation from expanded government spending on roads and other public projects. Heightened federal spending on such endeavors seems destined to become law and the seven construction equipment infrastructure investments to purchase should benefit bountifully.