We’ve all seen the headlines – America’s infrastructure is falling apart, bridges are crumbling, and major roads are chock full of potholes. The government knows infrastructure has been neglected for decades. That’s why, back in 2021, legislators passed massive spending bills totaling around $3 trillion targeted mostly at infrastructure modernization projects.
Now, almost three years later, that infrastructure boom has arrived. Those federal dollars are just starting to flow into roads, bridges, airports, broadband internet, the electrical grid, and more. There’s much more cash to come over the next decade, too. I believe we’re only witnessing the start of a massive, decade-long infrastructure boom.
Accordingly, I think it’s a smart play to get into industrial and materials stocks tied to infrastructure before the boom really takes off. These companies will see surging demand, juicy government contracts, strong earnings, and rising stock prices. And the best part? Many infrastructure-related stocks are still cheap, despite the sector’s bright prospects. Let’s take a look at some of the best options in the market right now!
Cleveland-Cliffs (CLF)
As one of the largest steel producers in North America, Cleveland-Cliffs (NYSE:CLF) stands to benefit enormously from the coming infrastructure boom. After its unsuccessful $35 per share bid for U.S. Steel, some investors grew skeptical about Cleveland-Cliffs’ growth prospects. But I believe the selloff is overdone. Cleveland-Cliffs remains a bargain buy, given the expected surge in infrastructure spending over the next decade.
Missing out on U.S. Steel was a blow in the battle to consolidate the American steel industry. However, Cleveland-Cliffs already completed its pivotal acquisition of AK Steel in 2020, establishing its firm foothold as a major supplier of infrastructure materials. Compared to steel peers, Cleveland-Cliffs boasts industry-leading profitability metrics. Current valuations around 10-times forward earnings dramatically undervalue Cleveland-Cliffs’ earnings growth potential, if infrastructure tailwinds gather steam.
Infrastructure legislation promises more than $1 trillion in new public works projects over the next decade. As shovel-ready construction unfolds, demand for steel products will accelerate rapidly. And while steel prices have settled back to pre-pandemic norms, resurgent economic expansion could easily ignite the next supercycle. If so, Cleveland-Cliffs’ depressed share price presents a compelling value opportunity for investors betting on an infrastructure boom.
Iteris (ITI)
Blending cutting-edge AI technology with cloud computing and advanced sensors, Iteris (NASDAQ:ITI) delivers smart mobility infrastructure solutions to improve transportation efficiency. This company stands ready to capitalize on the infrastructure spending wave as roads, vehicles, and cities grow increasingly connected.
Recent earnings results validate Iteris’s leading position at this lucrative intersection of technology and infrastructure. In Q3 2023, Iteris’ total revenue jumped 11% year-over-year, exceeding analyst targets. For the full year 2023, analysts forecast an impressive 32% earnings per share surge on continued double-digit revenue expansion. Yet, despite eye-popping growth metrics, ITI stock still trades at a mere 18-times forward earnings. That’s remarkably cheap for a tech stock executing so well.
As governments earmark billions to upgrade transportation networks, demand appears rock-solid for Iteris’ AI-powered mobility infrastructure solutions. Its ClearMobility platform visualizes traffic patterns to optimize mobility infrastructure planning and maintenance. Expansive product offerings (like advanced video and radar sensors to monitor intersections of every size) position Iteris well to capture a sizable share of this high-growth market. At 1.15-times forward sales compared to +10% revenue growth, ITI’s modest valuations seem disconnected from the company’s fundamentals.
Autodesk (ADSK)
Another software maker benefiting from the infrastructure boom, Autodesk (NASDAQ:ADSK) has its staked its claim in design and engineering in industries like architecture, construction, and manufacturing. Autodesk helps professionals design and create anything imaginable through its digital design platforms. And with infrastructure spending set to balloon over the coming decade, demand seems certain to accelerate for Autodesk’s large-scale project solutions.
After trading range-bound near $200 per share for most of 2022 and 2023, ADSK stock has staged an impressive breakout over recent months. Since November, shares are up nearly 26%, outperforming the S&P 500 and Nasdaq benchmark. And with momentum building ahead of swelling infrastructure tailwinds, I believe ADSK stock looks poised to continue steep gains.
At almost 10-times forward sales, Autodesk hardly looks like a bargain on the surface. However, the company’s current valuation looks plenty reasonable for a software business reinvesting heavily to stimulate growth in massive addressable markets. Consensus forecasts call for Autodesk’s sales to double by 2032 as infrastructure and construction activity scales dramatically higher. And profits should follow suit, expected to nearly double over the next eight years.
Applying the same price-to-earnings multiple on future earnings, ADSK’s share price would double if growth materializes as projected. Considering Autodesk’s track record of surpassing estimates year after year, the company’s risk/reward profile appears to be tilted firmly to the upside.
Software companies usually trade at a premium, but Autodesk checks all the right boxes for me. Trading at 33-times next year’s earnings barely reflects Autodesk’s long runway for above-market growth as infrastructure spending ramps into overdrive.
On the date of publication, Omor Ibne Ehsan 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.
