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Opportunity with Infrastructure Stocks: U.S. Steel, Caterpillar

Real Money’s Bob Ciura looks at companies he says should directly benefit from potential infrastructure legislation coming out of Washington.

Linking great investment ideas to emerging government legislation is hardly a new enterprise.

After all, both Wall Street and Washington D.C. insiders have built a long tradition of wealth-building through the winks, nods, and back slaps that accompany political sausage grinding – especially before it all hits the light of day.

For the rest of us, old-fashioned intuition, logic and research will have to suffice in leveraging market opportunity with new government legislation.

Case in point: The Biden Administration’s infrastructure plan winding its way through Congress.

There’s opportunity in infrastructure, says Real Money contributor Bob Ciura, representing a potential boon to stock market investors.

“The infrastructure framework sets forth hundreds of billions of dollars of government-funded spending on various infrastructure items such as roads and bridges, passenger and freight train infrastructure, power, water, and internet infrastructure, and more. With this in place, we see it benefiting construction and materials companies in particular, as they're the ones that would see direct benefit, in addition to services businesses such as engineering firms.”

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To illustrate his point, Ciura points to stocks that should benefit from an infrastructure bill, including U.S. Steel  (X) - Get United States Steel Corporation Report, Caterpillar  (CAT) - Get Caterpillar Inc. Report and Vulcan Materials  (VMC) - Get Vulcan Materials Company Report.

U.S. Steel -- One “fairly obvious” beneficiary of such an infrastructure deal is the steel industry, and one of the largest players in that industry is United States Steel, Ciura notes.

“The company could benefit from increased spending on a variety of items in the infrastructure framework, including steel to build bridges, trains and rail infrastructure, and utility infrastructure, all of which need immense amounts of specialized steel products to be built or refurbished. U.S Steel, being one of the largest players in steel in the U.S., stands to gain from such increased spending.

“U.S. Steel is currently expected to earn nearly $10 per share this year, but that is based upon a one-time spike in demand and higher pricing. Next year's current earnings-per-share estimate is just $3.65, and is $1.75 for 2023. We see that as a more sustainable level from which U.S. Steel can grow, and indeed rebuild its dividend that was slashed as the pandemic began.

Read more of what Ciura has to say about Caterpillar benefiting from increased machinery spending, and Vulcan Materials, which is poised to profit from materials spending that is inevitable with infrastructure upgrades.

Nobody is sure when a new infrastructure package will pass or what it will look like. Even so, the stocks listed above should benefit from a broad infrastructure deal.

“The three would benefit in different ways from a potential deal, but all three would almost certainly see higher revenue and earnings, and all three would then be able to more easily build their per-share dividend payouts,” Ciura said.