Politicians and business executives alike have been discussing the need to update aging bridges, roads, and other infrastructure for years. Something always seems to prevent a federal plan, so projects get funded a little at a time at the local level.
Investors have also been watching the federal government for signs of support for an infrastructure package. Recent election outcomes have stirred up even more interest. Investors looking for quality companies that would largely benefit, and that are solid long-term investments, should consider Nucor (NYSE:NUE), United Rentals (NYSE:URI), and Fastenal (NASDAQ:FAST).
Image source: Getty Images.
1. Nucor: The supply chain leader
Nucor is the leading and most diversified steel and steel products company in North America. Its upstream business makes just about everything needed for construction and infrastructure projects -- from plate and sheet, to rebar, beam, and piling. Nucor also has downstream businesses that manufacture joists, decking, metal buildings, and tubing.
Nucor has No. 1 or No. 2 market share in all those products other than sheet, where it is third. A top market share company spread across so many construction products will be a top beneficiary of any large infrastructure spending. Nucor will also profit from spending in other sectors including energy, industrial equipment, and transportation.
But the company isn't dependent on it. While construction is its largest end market, it represents a little more than one-third of its business. That diversity has helped Nucor successfully navigate the tumultuous months of 2020. The company said it expects fourth-quarter net earnings to more than double what it earned in the nine months through Sept. 30, 2020.
Investing in its growth projects has continued through the pandemic, setting Nucor up for years of increasing profits during the highs of market cycles. Nucor also gives investors a reliable dividend that it has increased for 47 straight years, putting the Dividend Aristocrat just three years away from Dividend King status.
Image source: Getty Images.
2. United Rentals: The job site boss
United Rentals has also successfully negotiated its business through the disruptions caused by the pandemic. The rental equipment company depends heavily on construction projects. Rental revenue -- its main revenue source -- was down 13% year over year in the third quarter, which was an improvement over the 16% decline in the second quarter.
Management reacted quickly to the economic slowdown caused by the pandemic, reducing capital expenditures and implementing cost savings measures that have paid off. The company raised its outlook after it reported its third-quarter results, and now sees revenue only about 10% below 2019. It also increased free cash flow estimates for the fourth quarter to as much as $2.3 billion.
Even at the midpoint of its estimated 2020 cash flow projection, United Rentals would be trading at a price to cash flow of less than eight -- as low as it's been in the past three years.
Data by YCharts.
The business is on the upswing as economic activity increases. As North America's equipment rental leader with 13% of the market, United Rentals would likely see a further surge in its business with any major new infrastructure spending.
3. Fastenal: Supplying the suppliers
Fastenal is another step up in the supply chain for construction projects. The distributor of industrial and construction supplies serves companies like Nucor and even United Rentals. Any manufacturer or business that requires ongoing maintenance to keep operations running efficiently depends on a company like Fastenal.
Vending devices and onsite locations are two growth initiatives Fastenal is using to differentiate it from competitors and strengthen ties to customers. It gives the company a physical presence, and maintaining vending machines filled with its products helps customers manage costs.
Fastenal reported that business was normalizing in its third quarter ended Sept. 30, as signings for onsite locations and vending devices continued to increase sequentially from the lows of April 2020. The company has also increased its total dividends paid to investors at a rate of over 17% per year over the last nine years. It announced a special dividend of $0.40 per share in the fourth quarter of 2020.
An infrastructure boost
Each of the above companies has a business that has recovered well from lows felt during the short, but deep, 2020 recession. They are also leaders in their industries, with solid customer relationships. Nucor and Fastenal also reward shareholders with dividends that have grown reliably.
With the potential for infrastructure spending to increase under the new administration and Congress, these industrial companies are in a position to see a surge in an already recovering business. Even if no new major package arises, all three are great infrastructure stocks to buy now.
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3 Infrastructure Stocks to Buy Right Now - Motley Fool
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