PAVE - The 3 Most Undervalued Infrastructure Stocks to Buy in July 2024
2024-07-10 09:26:00 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Infrastructure may not be as red-hot of a theme as big tech, and specifically artificial intelligence. But this is a sector that still has many catalysts that should continue to drive growth in 2024 and beyond. That’s why there’s still time to look for undervalued infrastructure stocks.
For starters, there’s the rebuilding of the Francis Scott Key bridge in Baltimore. That’s going to be a massive undertaking that reinforces the need to reinforce many other bridges throughout the country. There’s also the water infrastructure, the electric grid. And since it’s an election year, there are likely to be many more projects that get shovels in the ground so to speak.
To be fair, there are many infrastructure stocks that are far from undervalued. Many are doing quite well. However, the sector is going through a bit of a downturn. For example, the Global X U.S. Infrastructure Development ETF (NYSEARCA: PAVE ) is up 6.49% for the year, but is down 6.94% in the last three months.
But if you look through the top holdings of this ETF you can find some undervalued infrastructure stocks that appear to offer great value for investors.
Deere & Co (DE)
Many investors wouldn’t put Deere & Co. (NYSE: DE ) on a list of undervalued infrastructure stocks. The stock has been range bound since selling off from its all-time high in November 2022. The company’s core agricultural machinery business is highly impacted by commodity prices and interest rates. Both of those are working against the company, and there’s concern that even though the company is lowering its forecasts and taking cost-cutting measures , the business may remain under pressure.
Therefore, investing in DE stock at this time means you believe the Federal Reserve will cut interest rates at least once in 2024. That’s not a guarantee. However, anybody that claims to know what the Fed will do in an election year that seems like it may have some twists and turns to come is not being truthful.
Despite the uncertainty, analysts are still mostly bullish on the company with a consensus price target of $425.89 which is about 21% above the current price. And with a forward price-to-earnings ratio of 13x, the stock is objectively undervalued.
Steel Dynamics (STLD)
If recent economic data is to be believed, the easy gains in steel stocks are likely finished. Steel prices are well off their highs as many sectors are starting to show signs of softer demand. However, Steel Dynamics (NASDAQ: STLD ) stock is up 5% in 2024 at a time when many steel stocks are declining.
But falling steel prices isn’t necessarily leading to falling demand. In the company’s April earnings report, it said it expected several sectors such as automotive and energy to remain bullish . It’s also expecting to see an increase in public funding from both the Inflation Reduction Act (IRA) and the Deparment of Energy (DOE) initiatives.
Analysts are neutral on STLD stock, but many of those forecasts do not include the potential impact of tariffs on Chinese steel. Putting that aside, the stock trades at just 10x forward earnings. Plus, the company has a dividend that’s been increasing for 12 consecutive years.
WESCO International (WCC)
As far as undervalued infrastructure stocks are concerned, they don’t get much more under-the-radar than WESCO International (NYSE: WCC ). On its best day, the company that provides business-to-business distribution, logistics services, and supply chain solutions, would be considered boring.
But boring is often beautiful. And that’s the case with WESCO International. Although the stock’s total return is down over 9% in 2024. That’s the outlier and it’s due largely to a weak first quarter earnings report in which the company showed declines in every business sector.
However, over the past five years, the total return (stock price gains plus reinvested dividends) on WCC stock is 219.23%. That’s a return that any investor can get excited about, particularly since the company is expected to benefit from infrastructure spending, particularly with data centers.
WCC stock currently trades for about 11x forward earnings and analysts give the stock a price target of $196.89 which is 26% higher than its price on July 9, 2024.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Chris Markoch did not have (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.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.
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