The U.S. desperately needs better infrastructure, which, if addressed soon, could create a massive boom in infrastructure stocks.
Right now, we’re in bad shape.
Look at bridges, for example. According to the Infrastructure Report Card, 42% of the 617,000 bridges in the U.S. are more than 50 years old. And about 7.5% are structurally deficient, as we recently saw with the Baltimore bridge collapse.
Water main breaks occur on average every two minutes, and six billion gallons of treated water are lost every day. More than 40% of our roads are in poor or mediocre condition, and more than half of public school districts need to update or replace building systems.
In addition, “Over a 10-year period across the country, 19% of transit vehicles, and 6% of fixed guideway elements like tracks and tunnels were rated in poor condition.”
The American Society of Civil Engineers boosted the nation’s infrastructure grade to a 20-year high of C-, but we’re in pitiful shape. Not helping, they say there’s an “infrastructure investment gap of nearly $2.6 trillion this decade that, if unaddressed, could cost the United States $10 trillion in lost gross domestic product by 2039.”
Unfortunately, our ailing infrastructure isn’t going to fix itself.
That said, I expect to hear more infrastructure pitches as we near the November election. All of which could help boost infrastructure stocks.
Vulcan Materials (VMC)
The last time I mentioned Vulcan Materials (NYSE:VMC), I said its “recent dip to about $250 is a strong buy opportunity. VMC is also oversold on RSI, MACD, and Williams’ %R. From its current price of $258, I’d like to see it initially retest at $275.”
That was on April 27. It’s up to $275 today, with a likely further upside.
After all, if we do see a much-needed infrastructure boom, we’ll need a massive amount of aggregate, which Vulcan supplies.
According to Cemex (NYSE:CX), nearly 85,000 tons of aggregates are required to build just one mile of an interstate highway. Again, as noted above, with more than 40% of our roads in poor or mediocre condition, that’ll require a massive amount of aggregate.
In addition, “The average home needs around 400 tons of aggregate when built. A larger builder, like a school, takes upwards of 15,000 tons,” added Deseret.com.
This could easily fuel further upside for Vulcan Materials when and if the needed infrastructure boom gets going.
Caterpillar (CAT)
There’s also Caterpillar (NYSE:CAT), the $169 billion construction, mining and engineering equipment manufacturer with a 1.63% yield to boot.
Helping, the company just raised its dividend to $1.41, payable on Aug. 20 to shareholders of record on July 22.
The company also increased its buyback program by another $20 billion. According to Barron’s, it’s been buying back an average of $2.4 billion worth of stock every quarter for the last few years.
“Our strong financial performance supports increasing our quarterly dividend and share repurchase authorization,” added CEO Jim Umpleby.
Better, not only would Caterpillar benefit from a pick-up in infrastructure spending, but it would also benefit from the devaluation of the dollar with interest rate cuts.
Investorplace.com contributor Josh Enomoto noted that Caterpillar “arguably makes for an excellent idea for stocks to buy under interest rate cuts. For one thing, mining projects may accelerate due to the dollar’s devaluation.”
Global X Infrastructure Development ETF (PAVE)
Or, if you’d rather diversify at a lower cost, there’s the Global X Infrastructure Development ETF (CBOE:PAVE). With an expense ratio of 0.47%, the ETF holds about 99 top infrastructure stocks and trades at just $40 a share.
As noted by GlobalXETFs.com, PAVE invests in “companies that stand to benefit from a potential increase in infrastructure activity in the United States, including those involved in the production of raw materials, heavy equipment, engineering and construction.”
Some of its top holdings include United Rentals (NYSE:URI), Emerson Electric (NYSE:EMR), Parker Hannifin (NYSE:PH), Sempra (NYSE:SRE), Vulcan Materials, Eaton (NYSE:ETN) and Crane (NYSE:CR) to name a few.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.