3 Infrastructure Stocks to Buy Hand Over Fist in March

A combination of the $1 trillion infrastructure bill in the U.S. and the global need to maintain and upgrade infrastructure in developed countries while investing in new projects to support growth in emerging countries means there will be ongoing spending on infrastructure. That's great news for companies with exposure to it, and I think investors should look closely at Trimble (TRMB -1.52%), Freeport-McMoRan (FCX -0.84%) and Atkore (ATKR -0.63%) to play this theme. Here's why.

Trimble is revolutionizing how infrastructure is built

Trimble provides positioning and workflow technology that helps construction and geospatial companies with their daily operations. Its origins lie in precise positioning hardware. But its future lies in increasingly augmenting that hardware with software and services -- including advanced analytics -- to enable customers to make more-informed decisions and produce better outcomes.

With Trimble, for example, infrastructure projects can be precisely managed with a significant reduction in waste and the kind of cost overruns the industry is famous for. It's a key player in digitally transforming how infrastructure is built and maintained.

This transformation isn't just about solutions for its customers; the shift to software and services as a more significant part of its revenue mix also improves Trimble's profit margin and underlying cash-flow potential. As such, the company's mid-teens growth in its annualized recurring revenue (ARR) will drop into cash-flow generation. The company's free cash flow (FCF) generation is set to rapidly expand in the coming years, making the stock attractive.

Based on Wall Street analyst estimates, Trimble will trade at slightly less than 20 times the estimated FCF in 2025, a highly attractive multiple for a company growing ARR and FCF at a mid-teens rate.

Image source: Getty Images.

Freeport-McMoRan and the electrification of everything

This copper miner is more of a global player in infrastructure than a U.S.-focused company. That said, the electrification of everything is a global trend, and more electrification means more demand for copper.

Infrastructure spending is a significant part of that trend. If you want electric vehicles, you must have charging networks. If you want renewable energy, you must connect it to the grid. You must have electrical networks if you want to invest in transportation, communication, or data infrastructure, and if you want smart infrastructure, you must have electricity.

It's a powerful trend likely to drive demand for copper over the long term. Freeport-McMoRan is in a good position to meet that demand thanks to its pipeline of potential expansion projects, its value-enhancing leaching technology (recovering copper from existing stockpiles), and its low-cost production in Indonesia.

In short, the miner has the resources and the financial flexibility to invest in increasing supply, and to benefit from increased prices for copper. That's why it's the best mining stock to buy in 2024.

Atkore's best days lie ahead

I don't know what Atkore's revenue will be in a few years, and I strongly suspect its management might tell you the same thing. That's not a negative reflection on the company; it's more of a recognition that its prices and revenue are guided by movements in its key raw materials like steel, copper, and polyvinyl chloride (PVC).

So when those raw materials surged in 2021 and 2022, so did Atkore's revenue and earnings. It's a leading manufacturer of products used in electrical power systems in its electrical segment. It also manufactures metal frames and pipes -- among other things -- in its safety and infrastructure segment.

ATKR revenue (TTM) data by YCharts; TTM = trailing 12 months.

What we do know is that, despite a drop in selling prices that reduced earnings before interest, taxation, depreciation, and amortization (EBITDA) by $130 million in the first quarter of 2024, Atkore's sales volumes improved EBITDA by $52 million. There was an improvement in costs by $38 million.

Data source: Atkore presentations. The change figure does not tally due to other items.

The improvement in sales volumes and costs wasn't enough to fully offset the decline in pricing caused by the dramatic fall in raw materials prices that Atkore passed on to its customers.

Still, the crucial point is that rising infrastructure spending positively affects sales volumes. If raw materials prices stabilize, that will drop down into increased sales and earnings in the future. As such, Atkore's earnings could significantly improve in the coming years, and so the stock looks like a good value trading on 10 times its estimated 2024 earnings.