FAST - PAVE: Expecting Further Infrastructure Strength Heading Into 2024

2023-11-22 11:31:01 ET

Summary

• Goldman Sachs forecasts global GDP growth of +2.6% in 2024, with US GDP growth just above 2%.
• The Global X U.S. Infrastructure Development ETF is recommended as a buy, with a healthy valuation and dividend growth.
• PAVE is focused on the Industrials sector and has a diversified portfolio, but timing entry in February or March 2024 may be more favorable.

2024 macro and market outlooks by Wall Street's finest sell-side strategists have been coming in left and right. Goldman's projections, particularly regarding its forecast for global GDP growth, caught my attention this week.

Their team is more upbeat about the state of the macro picture compared to other research firms. GS sees 2024 global real GDP growth humming along at +2.6% with US real GDP growth just north of 2% - not far from the long-term trend. If we avoid recession, then cyclical Industrials-sector equities should perform well.

I reiterate my buy rating on the Global X U.S. Infrastructure Development ETF (PAVE). Following a technical breakout earlier this year, I see the fund as sporting a healthy valuation and dividend growth.

Goldman More Positive on 2024 Global Real GDP Growth

According to the issuer , PAVE seeks to invest in companies that stand to benefit from a potential increase in infrastructure activity in the United States, including those involved in the production of raw materials, heavy equipment, engineering, and construction. The fund invests in growth and value stocks of companies across diversified market capitalization.

PAVE, ranked no. 1 in its ETF Sub Class by Seeking Alpha, is a somewhat large fund with more than $5.3 billion in assets under management and pays a 0.71% trailing 12-month dividend yield , as of November 21, 2023. PAVE features extraordinarily strong share-price momentum , and I will detail key price levels to monitor on the chart heading into year-end later in the article.

Its 0.47% annual expense ratio is moderate, and I noticed that while the yield is low, there has been ample dividend growth within its portfolio. Still, PAVE can be risky at times given its concentrated sector exposure to a cyclical spot of the global economy, but liquidity is robust with an average daily trading volume of about 850k shares. The ETF's 30-day median bid/ask spread is tight at just three basis points per Global X.

The 5-star, neutral-rated ETF by Morningstar has diversified exposure across the style box, but there is zero exposure to the large-cap growth section. Thus, investors should expect PAVE to venture from S&P 500 returns over both short and long-term periods. Moreover, about half of the allocation is considered mid-cap, and another 23% is in the small-cap space. That feature also adds to the fund's risk construct. The 98-holding portfolio boasts a low price-to-earnings ratio under 15 while long-term earnings growth is healthy, resulting in a PEG ratio barely above 1 - that's a strong value.

PAVE: Portfolio & Factor Profiles

The significant risk with PAVE is that it is so focused on the Industrials sector. What's beneficial, though, is that the top 10 holdings comprise less than one-third of the portfolio, so it is not too top-heavy. What's more, there is some exposure to other sectors. Finally, the ETF's $0.22 last-12-month dividend payout is up significantly from its 2021 total.

PAVE: Holdings & Dividend Breakdown

Seasonally, PAVE tends to rally into year-end (though the mid-November through Dec 31 stretch is not all that great), but then encounters some bearish roadblocks over the first handful of weeks in a new year, according to data from Equity Clock . So, this is not the ideal time on the calendar to establish a long position - timing your entry in February and March 2024 could make more sense if historical trends hold.

PAVE: Neutral Seasonal Trends Through March

The Technical Take

Back in May, I was upbeat about PAVE's prospects. Indeed, the fund broke out above a cup and handle pattern, but the bears were not entirely tamed. The ETF fell below the top of the technical pattern during the August through October correction after notching a double-top at $32.66 over the summer. Still, with a long-term 200-day moving average that is positively sloped, I see the broader trend being higher. The October low of $28.19 also provides us with a price point to watch and use as a potential sell-stop point.

Also take a look at the volume by price indicator on the left side of the graph - there's an ample amount of shares traded in the $25 to $28 zone - that should provide a cushion on pullbacks (as it did in early Q4). Also encouraging for the bulls is the RSI oscillator at the top of the chart - momentum broke out from a downtrend line, helping to assert the bulls' strength during the latest rally.

Overall, the Q3 highs are resistance while the October low is support. The long-term target is $38 based on the cup and handle pattern.

PAVE: Bullish Cup With Handle Breakout

The Bottom Line

I reiterate my buy rating on PAVE. The fund has significant value, momentum is strong, the dividend continues to grow, and the technical view is sanguine.

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