President Biden unveiled his $2 trillion infrastructure proposal earlier this month. Republicans weren’t pleased with its massive size and proposed a smaller, more targeted measure that is in the ballpark of $700 billion. Currently, negotiations are ongoing on the final shape and size of the bill. So though we don’t know the final size, it is expected that an infrastructure bill will eventually be passed.
Public opinion shows that 60% of Americans are in support of infrastructure spending. That’s not surprising considering that research from the American Society of Civil Engineers (ASCE) shows that around 40% of America’s roads are in “poor or mediocre condition” while 7.5% of bridges are “structurally deficient”.
Commodity prices are rising and construction and industrial stocks are rallying in anticipation of this significant infrastructure bill. With that in mind, investors should also consider adding these three engineering stocks to their portfolios: Quanta Services (PWR), Jacobs Engineering (J),and EMCOR Group (EME).
Quanta Services (PWR)
PWR provides infrastructure solutions for electric power, energy pipelines, industrial companies, and communications. Its consulting services encompass the planning, design, installation, maintenance, and repair of all sorts of crucial infrastructure for businesses and governments.
The company has been thriving in this environment as its stock price has more than tripled over the past year. Despite this gain, the company remains reasonably valued with a forward PE of 19 which is cheaper than the S&P 500 at 23. Additionally, it expects to grow earnings by 40% over the next year and by 15% annually over the 5 years. Of course, this outlook could be upgraded with the passage of an infrastructure bill.
The POWR Ratings are also bullish on PWR as it is rated a B which translates to a Buy rating. This isn’t surprising given the strength of the industrial sector which bodes well for the prospects of engineering stocks. Further, the company has an above-average growth rate. Due to its lofty margins, this means that more of the accretive revenue will flow to the bottom line.
B-rated stocks have posted an average annual performance of 19.7% since 1999 which compares favorably to the S&P 500’s average annual return of 7.1% over the same period. PWR also has an industry-grade of A which is consistent with the strong outlook of the Industrial – Services sector given leading indicators like inventories and new orders in addition to the looming infrastructure bill.
Jacobs Engineering (J)
J is one of the leading engineering firms in the world. It provides engineering, design, procurement, construction, maintenance services, cyber engineering, and security solutions. The company serves industrial, commercial, and government clients in various sectors, including water, transportation, healthcare, technology, and chemicals.
The company has been a beneficiary of the environment as well as it’s won numerous contracts related to infrastructure projects and the expansion of telecom towers to prepare for the 5G rollout. It’s also been growing through acquisitions to move into adjacent markets such as advanced cybersecurity and intelligence. It also has an impressive backlog nearing $30 billion.
J has been increasing its focus on winning government contracts. This tends to lead to more consistent revenue as opposed to corporate customers where there is more volatility. Additionally, there tends to be less competition for bids.
J is rated a B by the POWR Ratings which translates to a Buy. The POWR Ratings also assess stocks by different components, and J has strong marks in numerous categories including a B for Stability which is consistent with its leading position and consistent track record of earnings and revenue growth. To see more of J’s component grades, click here.
EMCOR Group (EME)
EME provides electrical and mechanical construction services in the United States. It offers its customers design, integration, installation, operation, and maintenance services for a wide variety of industries including electric power generation and distribution, lighting systems, process instrumentation, chemical manufacturing, and broadband.
EME tends to be a highly volatile stock as its business is tied to companies’ capital spending plans. In this environment, this is not a liability but an asset. As a result, EME is up by nearly 200% since the stock market bottom in March 2020. And, this gain is being driven by earnings growth as analysts are forecasting 289% earnings growth next year.
The POWR Ratings are also bullish on EME as it has an A rating which translates to a Strong Buy. A-rated stocks have an average annual performance of 30.7% since 1999. The stock has strong grades across a variety of categories including a B for Momentum. This is consistent with its strong earnings growth and improved outlook as analysts are forecasting 15% annual earnings growth over the next 5 years.
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PWR shares were trading at $93.11 per share on Tuesday morning, down $2.72 (-2.84%). Year-to-date, PWR has gained 29.37%, versus a 10.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of POWR Growth newsletter. Learn more about Jaimini’s background, along with links to his most recent articles. More...
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