As the United States prepares to introduce $2 trillion in spending towards infrastructure and electric-vehicle development, the potential for an industrial supercycle is becoming increasingly likely. While this news may excite few, our former engineer turned industrial reporter suggests it could be a tremendous opportunity.
Despite recent dips in the Industrial Select Sector SPDR exchange-traded fund (XLI), experts believe it could be a good time to invest. The U.S. manufacturing economy has suffered seven consecutive months of contraction, however, a new ISM PMI reading is expected to be released on July 3, which could indicate a rise in production. This news has already been bolstered by better than expected existing-home sales and building permits.
That said, increasing exposure to manufacturing stocks can be a wise decision because industry sectors often benefit most from federal infrastructure plans. Additionally, the industrial economy looks as though it is finally bottoming out.
So while the industrial sector may not look attractive at present, industrial manufacturing companies, such as those that may benefit significantly from the upcoming federal investment, should remain on your radar.
Investing in Infrastructure: Best Stocks to Consider
With the passing of US Infrastructure bills worth $1.2 trillion and $500 billion, investors might be looking for popular stocks with improving outlooks that could bring a good return on investment.
One possible investment strategy is to consider stocks that are benefiting from reshoring manufacturing, focus on infrastructure spending, and the rise of EVs and renewable energy. United Rentals (URI), Deere (DE), Eaton (ETN), Schneider Electric (SBGSY), Quanta Services (PWR), and Johnson Controls International (JCI) fit the bill.
United Rentals and Deere offer construction equipment services, while Quanta builds complex electrical infrastructure. Eaton and Schneider specialize in the production of equipment for electrical infrastructure, whereas Johnson Controls provides multi-purpose heat pumps that electrify home heating and cooling.
These six popular stocks are widely recommended by analysts, with nearly 70% of experts rating their shares as a ‘Buy’, which is well above the average Buy-rating ratio of 55% for stocks in the S&P 500. These companies are projected to grow their earnings in upcoming years, with 2024 earnings estimates rising over recent months.
On average, these chosen stocks trade at about 17 times predicted 2024 earnings, which is slightly below the S&P 500’s existing multiple of 18 times. However, the range amongst these six companies varies greatly: United Rentals trades at about nine times earnings, while Quanta trades for about 23 times.
With the upcoming buying opportunity, these top stocks are an excellent place to start your investment journey.
