The US Senate is nearing a vote on a $1 trillion bipartisan infrastructure bill. Though there are no guarantees, it is expected that the bill will pass by this weekend.
The bill will provide funds to improve roads, bridges and mass-transit systems. In addition, the bill aims to update the broadband internet, power, waste, and water infrastructure.
CAT manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. CAT is the world’s largest manufacturer of construction equipment and heavy machinery, so it’s considered a leading indicator of the global economy.
CAT’s stock increased by 140% from March 2020 to its high in July of this year as optimism increased about the economic recovery. However, the stock is down by 20% from these highs as growth expectations have soured especially with another outbreak in coronavirus cases due to the Delta variant.
Currently, the stock seems to move more based on the macro outlook as it failed to rally despite a very strong Q2 report. In Q2, the company topped earnings estimates with $2.60 in earnings per share beating expectations of $2.41 per share. Revenue also topped expectations at $12.9 billion vs $12.5 billion. Overall, earnings more than doubled compared to last year's Q2, while revenue increased by 29%.
The company attributed to strength in the US housing market and increased Capex by commodity companies as the primary drivers of its strong report. The company expects revenue to trend higher the rest of the year but did warn that disruptions in the global supply chain, including the chip shortage, could hinder its ability to fully meet demand.
Given these uncertainties, Caterpillar didn't issue guidance for the full year or Q3. However, analysts project 2021 earnings to come in at $9.99 with revenue of $48.7 billion. For Q3, the consensus expectation is for $2.23 in earnings per share and $11.9 billion in revenue.
Therefore, the near-term outlook remains cloudy, but the company is well-positioned to profit from the commodity bull market, the strong housing market, increase in infrastructure spending, and Capex boom. This is consistent with its POWR Ratings as CAT has an overall B rating, which equates to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Southern Copper (SCCO)
SCCO is one of the largest integrated copper producers in the world. The company produces copper, molybdenum, zinc, lead, coal, and silver. It operates primarily in Peru, Mexico, Argentina, Ecuador, and Chile. SCC is based in Phoenix, Ariz.
SCCO nearly tripled from the bottom in March 2020 to its recent high in February 2021 along with copper prices which reached all-time highs. Since then, SCCO is down by 20% as growth expectations have contracted.
Yet, this could be a good buying opportunity as the company continues to post strong earnings reports. In Q2, SCCO reported earnings per share of $1.21, topping expectations of $1.15 per share. Additionally, this was a 258% increase from last year. Essentially, SCCO’s earnings growth has outpaced the gains in its stock price, implying that there is more upside especially if copper prices stay firm.
On a long-term basis, investors should remain constructive on copper as demand is set to be strong with infrastructure spending all over the globe, a rebound in industrial activity, and low levels of Capex spending. Currently, Capex spending is at 20-year lows (adjusted for inflation) despite prices hovering near 20-year highs.
SCCO has an overall B rating, which equates to Buy in our proprietary rating system. B-rated stocks have posted an average annual performance of 19%, significantly better than the S&P 500’s average annual performance of 7%.
Rio Tinto (RIO)
RIO explores for, mines, and processes mineral resources globally. It markets aluminum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium. The company also owns and operates open pit and underground mines, refineries, and research and service facilities.
RIO is a beneficiary of the commodity bull market as its stock has more than doubled from the March 2020 low. Interestingly, it’s demonstrated impressive relative strength over the past couple of months while many cyclical stocks have experienced deep pullbacks. Likely, one major factor is that iron ore prices have continued to trend higher.
Currently, RIO is priced as if iron ore prices are going to drop lower. For much of the past decade, commodity strength has been transitory. However, RIO has been able to increase its production through acquisitions. This trend means fewer companies dominate production which leads to more supply discipline.
Further, RIO is also producing metals that will be used in EVs and alternative energy which makes it a growth stock of sorts. This combination of value and growth makes it quite appealing especially as the stock is rated a Strong Buy according to the POWR Ratings. Strong Buy stocks have posted an average annual performance of 31%. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
CR is a diversified manufacturer of highly engineered industrial products. The company has four business segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics, and Engineered Materials. Its major customers are found in a variety of industries including chemicals, oil & gas, power, automated payment solutions, banknote design and production, aerospace & defense markets, along with a wide range of general industrial and consumer related end markets.
In the first quarter, ended March 31, CR’s net sales increased 4.5% year-over-year to $833.5 million. Its operating profit increased 65.2% from its year-ago value to $146.4 million, while its net income grew 72.6% year-over-year to $108.4 million. Its EPS came in at $1.84 for this period, compared to an EPS of $1.05 in the prior year quarter.
Analysts expect CR’s revenue for the current quarter, ending June 30, to be $777.31 million, representing 14.2% year-over-year growth. The company’s EPS is likely to increase 50.5% year-over-year to $5.78 for the current year.
It is no surprise that CR has an overall A grade, which equates to Strong Buy in our proprietary rating system. The POWR Ratings also evaluates stocks by various component scores to give greater insight. To see CR’s full ratings, click here.
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RIO shares rose $0.26 (+0.31%) in after-hours trading Thursday. Year-to-date, RIO has gained 17.87%, versus a 18.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of POWR Growth newsletter. Learn more about Jaimini’s background, along with links to his most recent articles.4 Stocks With Major Upside if the Senate Passes the Infrastructure Bill appeared first on StockNews.com