Bipartisan Infrastructure Bill Boosts Construction Stocks

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Rob Wells

After the federal government passed a bipartisan deal for $973 billion in infrastructure spending, the S&P 500 posted its best week since April, closing out Friday at new record highs. Shares of construction giants Caterpillar, Martin Marietta Materials, and Vulcan Materials traded higher on the news.

The Fed announced last Friday that all 23 large U.S. banks subject to the Federal Reserve’s annual stress test passed well beyond expectations. They said all banks stayed “well above” minimum capital levels even during the “severe global recession scenario”—a test case which posits a 10.9% unemployment rate and a 55% decline in the stock market.

Yahoo Finance listed five industrial stocks as Strong Buys:

• Titan Machinery Inc, which produces construction equipment in the USA and Europe for the commercial, residential and infrastructure sectors, “is posed well to benefit from higher demand stemming from infrastructure development.”

• Caterpillar Inc is the largest global manufacturer of construction and mining equipment and “is poised to gain immensely from the increased spending on U.S. infrastructure.” Caterpillar has an estimated long-term earnings growth rate of 12%, and shares have gained 20.5% so far this year.

• Deere & Company is mainly thought of as an agricultural producer, but they also have a large segment in earth moving, material handling and timber harvesting. The company’s earning for the ongoing fiscal year indicate a year-over-year growth of 106%.

• Terex Corporation produces materials processing machinery and cranes. The stock has gained 33% year to date and had an earnings surprise of 307%.

• The Manitowoc Company Inc is the leader of lattice-boom cranes, tower cranes, and mobile telescoping cranes. Their stock has surged 85.4% year to date.

It appears that, despite current lags in some construction projects—primarily commercial—the industry and the companies that supply the industry with equipment will do well as the new infrastructure work begins.

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