Soon after the election, as infrastructure stocks began booming, I wrote a column titled, “The Best Infrastructure Stocks for 2017.”
Readers liked it. A lot.
So today I have another bunch of infrastructure stocks to recommend. But instead of repeating myself, I’m presenting infrastructure stocks recommended by other Cabot analysts. These analysts all have their own particular stock selection systems (which all work great), and the fact that so many systems are homing in on infrastructure stocks reinforces my conviction that this is a great sector to invest in in 2017.
So here they are!
Infrastructure Stock #1: Martin Marietta Materials (MLM)
Martin Marietta Materials is in the construction aggregates business; if you want sand, gravel, stone, lime or cement, they can help. And business prospects are bright, given the many state and federal projects that are already baked in the cake and the accelerating economy (the Economic Cycle Research Institute (ECRI) Weekly Leading Index is growing at its fastest rate since 2010!).
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MLM has been hovering between 215 and 235 since its post-election bump, which is normal and potentially constructive action. And given that the price and relative performance line both hit decisive new peaks in November, the odds favor this tight consolidation resolving to the upside as long as the market remains in a bullish mode.
MLM was originally recommended by Mike Cintolo in Cabot Growth Investor. You can learn more about it here.
Infrastructure Stock #2: Avigilon (AIOCF)
Also trades on the Toronto exchange (AVO.TO)
Avigilon Corp., headquartered in Vancouver, British Columbia, is a leading designer, manufacturer and marketer of network-connected video surveillance systems, surveillance cameras and video analytics (software that scrutinizes video input). Customers include police departments, schools, hospitals, prisons, airports and public transportation systems.
The company’s research goal is to upgrade surveillance cameras to high-definition quality, enabling customers, including retailers and governments, to protect against theft or terrorism by providing detailed images usable in court or usable by facial recognition software. The company’s cameras can identify faces and license plates from 46 meters (150 feet) away.
Avigilon’s sales have been strong during the past five years, but earnings have been lagging. Now, with a “stronger focus” on increasing profitability, the company’s earnings will likely grow at a much livelier pace.
Avigilon boasts a strong balance sheet with modest debt and strong cash flow. The current 15.0 P/E (price to earnings ratio), based on 2016 EPS, is easily justified by Avigilon’s growth prospects. Earnings per share will likely grow at a 14% pace during the next five years. Avigilon is experiencing the typical growing pains that most small companies have to endure—high marketing expenses and high research and development costs—but the expenditures will lead to rapid growth in future years.
Avigilon was originally recommended by Roy Ward of Cabot Benjamin Graham Value Investor. Notably, Roy wrote, “The current price offers an excellent entry point to buy an exciting company in the rapidly growing surveillance sector. I expect Avigilon’s shares to double within two years.”
For more details, click here.
Infrastructure Stock #3: Quanta Services (PWR)
Quanta Services, based in Houston, Texas, provides services to the electric power, oil and natural gas industries. The company has 24,500 employees.
Wall Street expects slow and steady revenue growth, from $7.5 billion in 2015 to over $8.1 billion in 2018. Revenue growth is coming from all segments of the company, notably from acquisitions, electric power projects and a continued recovery in the natural gas industry.
The stock is undervalued, with its 2017 P/E at the bottom of its long-term P/E range, which often reaches 30 to 40 and higher. The long-term debt-to-capitalization ratio is very low at 13%.
This industrial stock does not have a glamorous story. It’s simply a very undervalued aggressive growth stock with a low debt ratio. PWR is currently building a base between 34 and 37, after a 24% post-election run-up.
Quanta was originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor (just before the election) and her readers are now sitting on a profit of 22%. For more details, click here.
Infrastructure Stock #4: Home Depot (HD)
Housing-related stocks have been outperformers since the election; the iShares U.S. Home Construction ETF (ITB) is up 11% since November 9. The reason: Home-related spending is expected to rise with rising incomes as the economy improves.
Home Depot, of course, is one of the most well known housing related stocks. And with a yield of 2.0%, it’s also the highest yielding and thus possibly the safest stock of this infrastructure group.
Home Depot was originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor back in 2015 and her readers are now sitting on profits of 15%—plus the and yield on their cost is 2.4%. Also, the average yield of the dividend stocks in Chloe’s Dividend Growth portfolio is 2.5%. For details, click here.
Infrastructure Stock #5: Mystery Stock (???)
The steel sector is about as cyclical as they come, with much of the sector’s success due to factors outside of its control. Today, those outside factors are lining up in the sector’s favor, which is why earnings appear to be poised for a huge turnaround and why so many stocks in the group are acting well.
This stock, originally recommended by Mike Cintolo in Cabot Top Ten Trader, is a lower-priced stock in the sector (it’s trading below 10 dollars per share), but it’s no fly-by-night firm, with a market cap of $3.2 billion and sales of $6 billion. The company has four plants in Ohio, Indiana and Mexico, and during the multi-year bust, it cut costs to the bone.
But the stock is strong today because of the industry’s rebound. Thanks to decreased imports due to tariffs, strong demand from the auto sector and a rebound from energy firms, prices are heading higher. The company has announced price increases on its carbon flat-rolled steel five times since late-October, with a separate increase on its stainless steel products! An accelerating economy and a protectionist-leaning U.S. administration should only help. It’s not a buy-and-hold stock, but this low-priced stock has big potential as long as the sector remains healthy.
For details, see Mike Cintolo’s latest issue of Cabot Top Ten Trader.
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