Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
You can access both of our platforms from a single Saxo account.
US infrastructure stocks to watch on Trump’s $1tn stimulus boost
Peter Garnry
Chief Investment Strategist
Summary: In today's equity note we show a basket of 30 US construction related stocks that could benefit from the potential new $1trn infrastructure plan by the Trump administration. This basket of stocks is high beta to the S&P 500 but has historically outperformed S&P 500. The basket has a lower net-debt-to-EBITDA than the market highlighting the industries' prudent financial management and valuations are generally in line with the market.
Last week’s rout in US equity markets was particular tough with US infrastructure related stocks down 9.6% but this week the group has staged a 3.4% comeback on the news that the Trump administration is preparing a $1trn infrastructure plan to boost the economy. We have created a basket of 30 US construction related stocks across different industries that could get a boost from such an infrastructure plan.
| Name | Sector | Industry | Mkt. Cap. | Return YTD (%) | EV/EBITDA | Net-debt-to-EBITDA | Chg. Est. EPS 1m (%) |
| Johnson Controls International plc | Industrials | Building Products | 25,819 | -13.4 | 13.6 | 1.3 | -0.2 |
| Carrier Global Corp | Industrials | Building Products | 18,406 | N/A | N/A | N/A | 0.3 |
| Masco Corp | Industrials | Building Products | 12,729 | 1.2 | 10.9 | 1.5 | 6.4 |
| Lennox International Inc | Industrials | Building Products | 8,608 | -7.4 | 14.3 | 2.1 | -0.1 |
| Fortune Brands Home & Security Inc | Industrials | Building Products | 8,629 | -3.5 | 12.0 | 2.3 | -0.3 |
| A O Smith Corp | Industrials | Building Products | 7,723 | 1.7 | 14.6 | -0.3 | 1.9 |
| Trex Co Inc | Industrials | Building Products | 6,940 | 33.5 | 30.0 | 0.3 | 0.6 |
| Owens Corning | Industrials | Building Products | 6,016 | -13.6 | 25.3 | 2.2 | 2.3 |
| AZEK Co Inc/The | Industrials | Building Products | 4,507 | N/A | N/A | 6.0 | N/A |
| Armstrong World Industries Inc | Industrials | Building Products | 3,630 | -18.9 | 10.1 | 0.8 | -0.5 |
| Simpson Manufacturing Co Inc | Industrials | Building Products | 3,651 | 5.1 | 14.2 | -0.5 | 0.0 |
| Advanced Drainage Systems Inc | Industrials | Building Products | 3,483 | 29.1 | 131.4 | 3.1 | 24.0 |
| Jacobs Engineering Group Inc | Industrials | Construction & Engineering | 11,077 | -4.8 | 16.0 | 1.9 | 0.4 |
| AECOM | Industrials | Construction & Engineering | 6,227 | -9.8 | 19.7 | 1.7 | 2.2 |
| Quanta Services Inc | Industrials | Construction & Engineering | 5,299 | -5.6 | 7.4 | 1.6 | -0.8 |
| EMCOR Group Inc | Industrials | Construction & Engineering | 3,426 | -27.4 | 6.3 | 0.7 | -1.1 |
| MasTec Inc | Industrials | Construction & Engineering | 3,165 | -33.1 | 3.8 | 1.3 | 2.4 |
| Valmont Industries Inc | Industrials | Construction & Engineering | 2,404 | -24.5 | 8.6 | 1.6 | -1.1 |
| Caterpillar Inc | Industrials | Machinery | 69,057 | -12.2 | 7.1 | 0.3 | 1.5 |
| Illinois Tool Works Inc | Industrials | Machinery | 53,863 | -4.4 | 15.8 | 1.6 | -1.5 |
| Deere & Co | Industrials | Machinery | 48,452 | -10.1 | 7.4 | 0.5 | 1.5 |
| PACCAR Inc | Industrials | Machinery | 25,746 | -5.0 | 6.1 | -1.2 | 2.0 |
| Otis Worldwide Corp | Industrials | Machinery | 24,898 | N/A | N/A | N/A | -0.1 |
| Cummins Inc | Industrials | Machinery | 25,261 | -2.8 | 8.3 | 0.5 | -0.4 |
| Fortive Corp | Industrials | Machinery | 22,967 | -10.6 | 19.4 | 2.9 | 0.3 |
| Stanley Black & Decker Inc | Industrials | Machinery | 21,078 | -16.6 | 14.1 | 2.5 | 5.7 |
| Dover Corp | Industrials | Machinery | 14,013 | -14.7 | 12.6 | 2.1 | 0.0 |
| Ingersoll Rand Inc | Industrials | Machinery | 12,239 | -19.9 | 44.0 | 5.4 | 0.5 |
| Xylem Inc/NY | Industrials | Machinery | 11,948 | -15.1 | 18.3 | 1.6 | -1.1 |
| IDEX Corp | Industrials | Machinery | 11,543 | -10.4 | 17.9 | 0.8 | -0.3 |
Source: Bloomberg and Saxo Group
The basket as a whole is down 8% year-to-date on an equal-weighted basis which is in line with the S&P 500. These construction related stocks have generally a low market capitalization except for the machinery companies which are most likely more global in their business footprint. The average net-debt-to-EBITDA is only 1.6x compared to 1.9x for the S&P 500 indicating a lower leverage which means lower default risk all things equal. The basket’s equal-weight valuation is equal to the S&P 500 if Advanced Drainage Systems is excluded from the calculation. The blended 12-month EPS estimates are up on average 1.5% the past four weeks which also mimics the S&P 500. If the Trump administration’s infrastructure plan materializes we would expect estimates to drastically improve.
An alternative to our custom basket is the Invesco Dynamic Building & Construction ETF (PKB:arcx) which holds 30 US-listed companies engaged in providing construction and related engineering services for building residential/commercial/industrial properties, or large infrastructure projects.
Measured since 1 January 2015 our basket of 30 stocks (equal-weighted) has done better than the S&P 500 but with a higher beta which makes sense since this industry is pro-cyclical. The high downside beta is also evident in the fact that this group of stocks experienced a 70% drawdown compared to only 32% in the S&P 500.
Besides the potential infrastructure plan by the Trump administration the current Fed policy has pushed down interest rates including the US 30-year fixed mortgage rate which hit a record 3.13% for the week ending 18 June. This is a direct positive factor for the construction sector and as such should help lift earnings and the outlook for these stocks.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...