CFRA Research Eyes Infrastructure Stocks

The general election is fast approaching and uncertainty regarding the upcoming election could lead to heightened market volatility.

What Wall Street fears the most is a clean sweep with the Democrats regaining control of the presidency as well as both houses of Congress, given the prospects of higher taxes and more regulation.

A clean sweep in November, however, may likely be the best-case scenario for a large infrastructure bill to finally get to the finish line, which could be a significant positive catalyst for construction materials companies.

The most important product for construction materials companies in aggregates (crushed stone, gravel, sand, etc.), and the most aggregates-intensive public works projects relate to surface transportation (roads and bridges).

Eagle Materials (EXP), Martin Marietta Materials (MLM), Summit Materials (SUM), and Vulcan Materials (VMC) are poised to enjoy a long-term tailwind from higher infrastructure spending in the U.S, amid pent-up demand to refurbish and upgrade America’s aging infrastructure.

Our top pick among these stocks is Summit Materials, which has been one of the fastest-growing construction materials companies in the U.S. over the past three years, increasing its revenue by 55% between 2016 and 2019.

SUM is vertically integrated, and the company offers its customers a single-source provider for construction materials and related downstream products. The company supplies aggregates across the U.S. and in British Columbia, Canada, and cement, which SUM supplies to states along the Mississippi River.

In addition to supplying aggregates to customers, SUM also uses a portion of its materials internally to produce ready-mix concrete and asphalt paving mix, which may be sold externally or used in its paving and related services businesses. SUM's four largest states by revenue accounted for 57% of 2019 sales: Texas (22%), Kansas (13%), Utah (12%), and Missouri (10%).

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