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After CAT’s Roar: The 3 Best Infrastructure Stocks to Buy Now

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As of last November, the Biden administration had disbursed $306 billion of the more than $850 billion in Infrastructure Investment and Jobs Act funds. Moreover, the think tank reported, “80% of all competitive funding (was) still left to be awarded.” Nonetheless, Caterpillar’s (NYSE:CAT) impressive fourth-quarter results, reported on Feb. 5, indicate that infrastructure stocks can benefit from Washington’s infrastructure spending spree.

Also importantly, the price-earnings ratios of many firms in the sector, in contrast with most tech names, are quite low. And going forward, American infrastructure companies are very well-positioned to continue benefiting from the federal government’s continued, large investments in infrastructure. For investors who want to benefit from this strong trend that will last many years, here are the three best infrastructure stocks to buy now.

Caterpillar (CAT)

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Caterpillar’s profit soared both last quarter and in all of 2023. In Q4, its earnings per share, excluding certain items, soared 35% versus the same period a year earlier to $5.23. For all of 2023, its adjusted EPS jumped 53% to $21.21.

In addition to the U.S. government’s high infrastructure spending, I believe that CAT is benefiting from the onshoring trend in America, with spending on the construction of factories growing rapidly to record levels in the last two years. That trend should continue, with the EV Boom, the Green Energy Revolution, Washington’s subsidies for semiconductor factories and the need for new data centers to facilitate the AI Revolution. This will result in new plants in America and many other advanced nations.

Also noteworthy is that the world’s increased demand for minerals, many of which are needed to facilitate the EV Boom and the Green Revolution, is boosting CAT’s mining-equipment business.

As the firm grows and the demand for its products surges, its profit margins are also jumping. Specifically, its operating profit margin jumped to 18.4% last quarter from 10.1 in Q4 of 2022.

The forward price-earnings ratio of CAT stock is a low 15.4.

Quanta Services (PWR)

Environmental technology concept. Picture of mountains with icons of infrastructure on top of it. Infrastructure stocks.

Source: metamorworks / Shutterstock

As I noted in a previous column, Quanta (NYSE:PWR) “is very well-positioned to benefit from the shift to electrified transportation.” It “builds infrastructure, electrical power stations, facilities for renewable energy and natural gas transmission.” As a result, it’s definitely one of the best infrastructure stocks to buy.

Indeed, it’s playing a key role in two side-by-side initiatives in New Mexico which, according to PWR, taken together,  ” represent the largest clean energy infrastructure project in United States history,”

According to KeyBanc, the SunZia projects alone are going to generate about 5% of PWR’s EBITDA in 2024.  

Moreover, Quanta will also benefit from the Bipartisan Infrastructure Law, which is investing a great deal of money in building up the country’s electrical grid.

The Street appears to be becoming quite fond of Quanta. On Jan. 16, Citi named PWR as one of its 20 favorite large-cap stocks. And on Dec. 13, Bank of America identified PWR as one of the names that had momentum in three areas: “earnings, price, and sentiment.”

Given PWR’s strong growth outlook, its forward price-earnings ratio of 24.6 is quite attractive.

Powell Industries (POWL)

Picture of a highway system with business statistics on top of it. Infrastructure stocks.

Source: ekapol sirachainan / Shutterstock

Powell Industries (NASDAQ:POWL) specializes in manufacturing and selling electrical equipment. Like Quanta, the electrification of transportation and the Bipartisan Infrastructure Law will benefit Powell.

Indeed, the firm does appear to be benefiting from these trends as its top line soared 53% last quarter versus the same period a year earlier, while its earnings per share came in at $1.98, way up from $0.10 in the same quarter of 2022. Also noteworthy is that the firm’s backlog surged almost 100% year-over-year to $1.3 billion.

“We continue to see encouraging levels of project activity across the majority of our core Industrial end markets,” said CEO Brett Cope in a statement. He added that the firm is also getting a lift from the expansion of data centers and Green Energy projects.

The forward price-earnings ratio of POWL stock is 22.4. That’s quite low, given the company’s tremendous growth.

On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.

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