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Top 5 Best Infrastructure Stocks to Buy Now (2019 Review)

The crumbling infrastructure of the U.S. continues to present a litany of woes: unreliable mass transit; collapsing bridges; exploding tanker cars; leaking pipelines; pockmarked roads and highways. America may be the globe’s biggest economy, but it often resembles a banana republic.

The urgent need to fix infrastructure is a headache for government leaders but a huge bonanza for investors who choose the right infrastructure stocks. Below, I pinpoint the five best ones to buy now.

best infrastructure stocks reviewed

What's In This Guide?

It’s not just in America. Deteriorating infrastructure is a global problem, which makes infrastructure spending an unstoppable investment trend.

In a recent study, the Global Infrastructure Hub (GIH), a research organization backed by the G20, reported that $97 trillion is required in global infrastructure investment by 2040. The study also found a $18 trillion shortfall between current investment projections and the spending that’s needed.

Among the 50 nations studied in the GIH report, the U.S. has the biggest estimated shortfall at $3.8 trillion. That’s the staggering price tag to get America’s bridges, roads, sewer systems and other infrastructure up to standard.

The non-partisan group Building America’s Future reports that one third of America’s major roads are in poor or mediocre condition and 45% of major urban highways are congested.

However, while Capitol Hill wallows in acrimony and indecision, state and local leaders are rolling up their sleeves and getting the job done.

According to the National Organization of State Budget Officers, most governors have successfully pushed through big increases in infrastructure spending for 2018 and beyond, financed by bond issues, toll increases, special taxes and other means. These state leaders haven’t waited for the dithering feds; they’ve been proactive and innovative.

The research consultancy Infrastructure USA reports that several states and local jurisdictions are now reconstructing or proposing to reconstruct highways and bridges without the help of federal grants.

Another state-level trend is the authorization of public-private partnerships for transportation projects.

This video highlights America’s need for a revitalized infrastructure:

What are Infrastructure Stocks?

Publicly traded infrastructure companies are responsible for developing the basic facilities and systems of a country, city or region. These companies are vital for economic development and growth; they build and repair the “backbones” of modern cities.

Infrastructure is a single broad term used for all physical systems, including sewage, water, and electrical systems, communications, and transportation. Some infrastructure companies even own entire shipping ports or the very bridges and roads that we drive on. Infrastructure also encompasses waste disposal, educational facilities, and public health delivery.

Infrastructure companies are tapped into basic human needs that will always exist, regardless of economic ups and downs or the gyrations of the stock market. As such, they make prudent long-term investments.

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Our Best Infrastructure Stocks for 2019

The aforementioned trends are providing multi-year tailwinds for five infrastructure stocks in particular:

  • Fluor (NYSE: FLR): A construction and engineering colossus that’s well connected to public works departments around the world.
  • Martin Marietta Materials (NYSE: MLM): The go-to maker of advanced aggregates that stands to benefit from increased state and local road building.
  • AECOM (NYSE: ACM): Logistical consultant, architect and engineer for a wide variety of infrastructure projects.
  • ABB (NYSE: ABB): Industrial stalwart that offers robotics, power, heavy electrical equipment and automation services.
  • Tetra Tech (NSDQ: TTEK): Specialist in remediation, clean-up and reconstruction in the wake of environmental catastrophes.

How Do You Determine What Qualifies As The Top Infrastructure Stock?

As with any stock market investment, infrastructure equities worth buying must demonstrate growth in corporate earnings and revenues. Each of our five picks meets this vital criterion.

Infrastructure firms must grapple with the enormous capital costs associated with the building and maintenance of complex structures. Billions of dollars in heavy equipment and a well-paid workforce are on the line, requiring solid balance sheets and plenty of cash on hand.

As such, quality infrastructure firms generate some of the steadiest cash flows of any industry. Investors looking for reliable growth and dividend income are well-served by looking into the sector.

Let’s examine the infrastructure stocks with the best potential for growth in 2019.

Fluor

What is it?

With a market cap of $5.7 billion, Texas-based Fluor is the largest and most diversified company in its sector, providing engineering, construction and project management services around the globe.

The company operates in five segments: Oil & Gas; Industrial & Infrastructure; Government; Global Services; and Power.

Fluor has its fingers in many mammoth transportation projects, with a revenue mix that provides a measure of stability. Fluor also is a major player in nuclear power, which is enjoying resurgence due to concerns over climate change and fossil fuel pollution.

Why is it a good stock?

Fluor’s forward 12-month price-to-earnings ratio (FPE) of 13.1 is roughly in line with its peers, which sport an average FPE of 13.5. It’s also a bargain compared to the S&P 500’s FPE of about 17. The average analyst expectation is that Fluor’s year-over-year earnings growth will reach 69.2% in 2019, and 44.9% over the next five years (on an annualized basis). The dividend yield is 1.88%.

Martin Marietta Materials

 

What is it?

North Carolina-based Martin Marietta produces crushed stone, gravel and sand, which are called “aggregates” and are mixed with cement to create concrete for the construction of roadways. The company operates in four segments: Mid-America Group; Southeast Group; West Group; and Specialty Products.

With a market cap of $12 billion, Martin Marietta also produces chemical additives for ceramics and water treatment, as well as fiber-reinforced polymer products for use in bridge decks, truck trailers, railroad cars and residential construction.

Martin Marietta recently spent $1.6 billion in cash to buy Bluegrass Materials, a privately held aggregates company that boasts high-quality reserves of raw materials.

Why is it a good stock?

MLM’s FPE is a bit pricey at 19.6 but the modest premium is worth it. The average analyst consensus is that MLM’s year-over-year earnings growth should reach 17.6% in 2019, and 12.1% over the next five years on an annualized basis. The dividend yield is 1.03%.

AECOM

What is it?

California-based AECOM is an acronym for Architecture, Engineering, Consulting, Operations and Maintenance, an apt summary of its many interests.

With a market cap of $5.1 billion, AECOM is a global provider of planning, consulting, engineering, architectural, and construction management services for highways, bridges, airports, mass transit systems, government and commercial buildings, water and wastewater facilities, and power transmission.

AECOM is benefiting from a ballot initiative passed November 2016 in its home state of California that calls for a half-cent sales tax increase to plow $120 billion into rail and bus expansions over the next few decades, in addition to street upgrades and pedestrian walkway improvements.

Why is it a good stock?

The average analyst consensus is for AECOM to rack up year-over-year earnings growth of 17.6% in 2019, and 12.1% over the next five years on an annualized basis. The stock’s FPE of 10.4 makes it a bargain. The stock doesn’t currently pay a dividend.

ABB

What is it?

With a market cap of $43 billion, ABB is a global diversified powerhouse that specializes in emergency construction. A manufacturer of electrical equipment for utilities and industrial customers, ABB operates through five divisions: Power Products; Power Systems; Discrete Automation and Motion; Low Voltage Products; and Process Automation.

ABB’s diversification bestows stability during economic downturns, but it’s when the economy is in expansion mode that the company really shines.

ABB spends over $1 billion annually on research and development (R&D), as it combines conventional manufacturing muscle with advanced high technology. ABB is plowing considerable R&D into its robotics division, which currently accounts for about 20% of total revenue

Management is positioning the company to reap long-term growth from the increasing transfer of manufacturing capabilities to robots. Remote controlled devices and robots are especially useful in hazardous materials clean up, such as contaminated nuclear power plants.

ABB generates roughly half of its revenue from late-cycle companies that gain traction during the later stages of economic recovery, such as utilities.

Why is it a good stock?

The average analyst expectation is for ABB to generate year-over-year earnings growth in 2019 of 10.4%, and 6.2% over the next five years on an annualized basis. The FPE is 13.6, well below the overall market and within the parameters of its industry. The dividend yield is a robust 4.16%, making this stock an appealing combination of growth and income.

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Tetra Tech

What is it?

Global warming poses a bigger threat to the U.S. economy and infrastructure than ever, with escalating risks ahead. That’s the dire warning of the latest National Climate Assessment, a 1,656-page report issued on November 23, 2018 that examines the potential damage from climate change.

The scientific report, which comes out every four years as mandated by Congress, was produced by 13 federal agencies and released by the Trump administration.

The upshot for investors: Violent climate change will generate massive construction and engineering projects far into the foreseeable future.

That’s where Tetra Tech comes in.

With a market cap of $286.6 million, Tetra Tech provides consulting, engineering and technical services for the water, environment, energy, infrastructure, and natural resources sectors.

Tetra Tech’s clients include federal, state, and local government agencies in the U.S., as well as commercial and international clients. The company also has a growing presence in the energy sector, for pollution prevention and remediation.

California-based Tetra Tech prepares facilities, infrastructure and supply chains for the worst—and comes to the rescue if the worst actually occurs.

Tetra Tech has responded to thousands of chemical, biological, radiological, nuclear, and explosive releases, as well as natural calamities such as hurricanes, tornadoes, floods, and earthquakes.

Why is it a good stock?

TTEK offers a small dividend yield of 0.73%, but its growth prospects are on track to greatly outpace the broader stock market.

The analyst consensus is for TTEK to generate year-over-year earnings growth of 525% in 2019, and 29% over the next five years on an annualized basis. The FPE is 13.4, a small price to pay for that level of outsized earnings growth.

John Persinos is the managing editor of Investing Daily.

 

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