The 3 Best Construction Stocks To Own Forever

This slide from a recent investor presentation shows why Deere continues to see strong demand over the long-term, something that should continue indefinitely.

Deere Macroeconomic Tailwinds

Source: Investor update, page 30

Deere shows that steady population growth, increasing urbanization and the constant need for more food all fit into its strategic plan. Deere is poised to deliver the equipment and services needed to support all three of these long-term global tailwinds with its diverse base of products.

In addition, Deere has more recently pushed into becoming an end-to-end solution for road construction as a way to capitalize on the global need for infrastructure investment.

Deere Road Construction Portfolio

Source: Investor update, page 24

This slide shows how Caterpillar’s Wirtgen acquisition has made it a true end-to-end provider of road construction equipment. Given the weak state of US infrastructure and similar situations around the world, we think Deere is well-positioned for long-term demand for all of its business segments, but this one in particular.

We see Deere as accruing lower prospective total returns than Caterpillar simply because Deere shares haven’t fallen as far and thus, the valuation isn’t as favorable. Indeed, shares trade today for 13 times this year’s earnings estimates, which compares to our estimate of long-term fair value at 14 times earnings. However, we do see ~6% earnings growth combining with the 2% yield and a ~2% tailwind from a rising valuation to give investors a ~10% annual total return in the years to come.

Final Thoughts

While construction stocks can be cyclical and therefore, volatile, they also offer investors access to long-term macroeconomic demand factors. The three companies listed here are all diversified in their revenue streams, are strategically aligned to long-term economic forces, and maintain profitability and dividend payments even during the worst downturns. To boot, all three offer investors strong prospective total returns today.

We see Fluor, Caterpillar, and Deere as strong picks for those investors looking to gain exposure to what should be a booming industry for decades to come (except during recessions, when investors must hold to take advantage of prosperous times). Indeed, these are three stocks one can buy and own forever.

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Disclaimer: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities. However, the publishers of Sure ...

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