MTZ - Why MasTec Could Be A Good Industrial Contrarian Play

2024-04-17 05:16:42 ET

Summary

• Construction sector benefiting from infrastructure investments, inflation reduction, and technological trends.
• Inflation and interest rates may pose a problem for the residential housing sector, but specialty builders like EMCOR and MasTec are less affected.
• MasTec has weaker pricing power but has benefited from an improving business environment and expanded contracts with AT&T.

A couple of weeks ago, I penned a bullish article on giant specialty contractor EMCOR Group, Inc. (NYSE: EME ) wherein I pointed out that the company, and the industry in general, are clearly benefiting from the trillion-dollar Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA) as well as secular trends such as AI, ML and electrification. The latest inflation data has prompted me to revisit the construction sector in general, and recently reiterated my Hold recommendation for tiny home builder Legacy Housing Corp. (LEGH). Construction is an inherently high-risk industry thanks to its broad exposure to macroeconomic factors such as commodity pricing, supply chain and labor dynamics, and housing demand. The increase in consumer prices has declined from a peak of 9.1% in mid-2022; however, the disinflationary trend has virtually stalled in recent months. In March, the CPI reading increased 0.4 percent, seasonally adjusted, and 3.5 percent over the last 12 months. That data has forced financial markets to scale back expectations: according to the CME FedWatch Tool , bond traders are betting a mere 19% probability that the Fed will cut rates at its June policy-setting meeting, down from 56% before the report came out. Meanwhile, interest rates have been gradually ticking higher, with the 10-Year Treasury yield up to 4.639% currently from 3.789% at the end of 2023. This scenario is further exacerbated by the fact that the U.S. economy is currently in the late stage of the business cycle, which does not favor consumer cyclicals....

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