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U.S. Infrastructure Spending Likely to Drive Markets: 5 Picks

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·7 min read
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Wall Street is facing severe volatility this year. On top of that, skyrocketing inflation and a more hawkish Fed — to combat inflation — have raised concerns about stagflation in the U.S. economy. All major stock indexes are currently in negative territory.

Hopes are pinned on the infrastructure spending project of the Biden administration that could be the next catalyst. Several companies are likely to gain from this government spending. Five such with a favorable Zacks Rank are Commercial Metals Co. CMC , Steel Dynamics Inc. STLD, Atlas Technical Consultants Inc. ATCX, Middlesex Water Co. MSEX and H&E Equipment Services Inc. HEES.

Biden's Infrastructure Project

On Nov 15, President Joe Biden signed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. With this the bill has become a new law. The law aims at establishing the United States with the world's best economic infrastructure. Total spending may go up to $1.2 trillion if the plan is extended to eight years.

The infrastructure development law will provide $100 billion toward roads, bridges and other major projects. It will invest $66 billion in freight and passenger rail, including potential upgrades to Amtrak. The project will provide $11 billion toward reducing car crashes and fatalities through a “Safe Streets for All” program. The law allocates $39 billion to modernize public transit and improve access for disabled people.

In addition, the law has proposed $66 billion for passenger and freight rail, $15 billion for electric vehicles and buses, and $17 billion for airports, ports and waterways. The project will invest $50 billion in water infrastructure and $55 billion in clean water projects. Moreover, $65 billion will be invested in high-speed Internet (broadband), $21 billion in environmental clean-up and $73 billion in power infrastructure.

U.S. Economy Remains Strong

Despite galloping inflation U.S. consumer spending, which accounts for nearly 70% of the economy has remained steady. In March, retail sales grew 0.5% over the previous month and 6.9% year over year. February’s data was also revised upward from a gain of 0.3% to 0.8%.

Industrial production rose 0.9% in March beating the consensus estimate of 0.4%. Manufacturing, a major component of industrial production also grew 0.9%. For first-quarter 2022, industrial production climbed 8.1% year over year.
The U.S. economy added 1.661 million jobs in the first quarter of 2022. Unemployment dropped to 3.6% in March. Moreover, the University of Michigan reported that the preliminary reading of U.S. consumer sentiment in April jumped to 65.7% from 59.4% in March.

The Department of Commerce reported solid housing data for March despite increasing the 30-year fixed-rate mortgage. Housing starts rose 0.3% to a seasonally adjusted annual rate of 1.793 million units in March compared with the upwardly revised 1.788 million units in February. Building permits rose 0.4% to a seasonally adjusted annual rate of 1.873 million units in March compared with the upwardly revised 1.865 million units in February.

Our Top Picks

We have narrowed our search to five stocks that are likely to gain from the Biden administration’s infrastructure development legislation. These companies have strong growth potential for 2022 and have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in the past month.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Commercial Metals is poised to gain on robust steel demand, stemming from elevated spending on the residential and construction sector in North America and recovery in the manufacturing sector. Steel sales volumes in Europe are anticipated to remain healthy on increasing demand from the construction and industrial end market.

Construction activity in Poland remains particularly strong aided by the residential markets. These factors would boost steel shipment levels in North America and Europe, and support CMC’s results in fiscal 2022.

Zacks Rank #1 CMC has an expected earnings growth rate of more than 100% for the current year (ending August 2022). The Zacks Consensus Estimate for current-year earnings improved 18.8% over the last 30 days.

Steel Dynamics is expected to gain from acquisitions as well as strong liquidity and efforts to expand capacity. The acquisitions of Heartland and United Steel Supply have boosted Steel Dynamics' shipping capabilities. Moreover, the buyout of Zimmer should support the raw material procurement strategy at its new Texas flat roll steel mill.

STLD is also expected to gain from its investments to beef up capacity and upgrade facilities. Steel Dynamics is executing several projects that should add to capacity and boost profitability. The electric-arc-furnace flat roll steel mill will strengthen its steelmaking capacity and value-added product capability.

Zacks Rank #1 Steel Dynamics has an expected earnings growth rate of 18.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.4% over the last 30 days.

Atlas Technical provides professional testing, inspection, engineering, environmental, and program management and consulting services in the United States. ATCX provides a range of technical services that helps its clients test, inspect, plan, design, certify, and manage various projects across various end markets.

Atlas Technical offers testing, inspection, and certification services, such as construction materials testing; non-destructive testing and evaluations, materials testing and inspection, laboratory, and geophysics; construction quality assurance; owner verification and inspection, forensic and structural investigations, and materials laboratory services.

Zacks Rank #1 ATCX has an expected earnings growth rate of 37.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 29.1% over the last 60 days.

H&E Equipment Services is one of the largest integrated equipment services companies in the United States. HEES is focused on heavy construction & industrial equipment and rents, sells and provides parts and service support to four core categories of specialized equipment namely, hi-lift or aerial platform equipment, cranes, earthmoving equipment and industrial lift trucks. By providing equipment rental, sales, and on-site parts, repair and maintenance functions under one roof, HEES is a one-stop provider for its customers' varied equipment needs.

Zacks Rank #1 H&E Equipment Services has an expected earnings growth rate of 34.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.6% over the last 60 days.

Middlesex Water owns and operates regulated water utility and wastewater systems. MSEX operates in two segments — Regulated and Non-Regulated. The Regulated segment collects, treats, and distributes water on a retail and wholesale basis to residential, commercial, industrial, and fire protection customers, as well as provides regulated wastewater systems in New Jersey and Delaware.

The Non-Regulated segment provides non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware.

Zacks Rank #2 Middlesex Water Services has an expected earnings growth rate of 28% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.7% over the last 60 days.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report

Commercial Metals Company (CMC) : Free Stock Analysis Report

H&E Equipment Services, Inc. (HEES) : Free Stock Analysis Report

Middlesex Water Company (MSEX) : Free Stock Analysis Report

Atlas Technical Consultants, Inc. (ATCX) : Free Stock Analysis Report

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