America’s manufacturing industry, after waning for decades, is adjusting to a world that has ditched globalization for reshoring – bringing production back home. That has set the stage for an infrastructure building boom, much of it backed by the U.S. government.
“The U.S. is in the early innings of reindustrialization, a multi-decade investment opportunity that will restore growth to the U.S. industrial economy following 20-plus years of stagnation,” Morgan Stanley research analyst Chris Snyder wrote in a recent report.
The big infrastructure buildout is worth paying attention to because it encompasses a broad range of businesses in a number of sectors. Many infrastructure companies are old line industrials, including businesses that make heavy machinery or parts for industrial production. Other companies provide services to such businesses or transport goods or people. Also included under the infrastructure tent are companies in the materials, energy and utilities sectors. Even some tech firms are considered infrastructure plays these days.
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It’s the dawn of a new era for infrastructure spending
America’s manufacturing industry is beginning to reassert itself. The dominance of U.S. industrial firms began to decline when China joined the World Trade Organization in 2001. Back then, American industrial companies made up roughly 12% of the market value of the S&P 500.
But cheap labor abroad and a focus on globalization helped to undermine the sector, as companies moved manufacturing overseas. (At the same time, the soaring fortunes of technology-related firms shifted market leadership in their direction.) Today, industrial stocks represent just over 8.5% of the S&P 500.
But the tide is turning. The COVID-19 pandemic highlighted the downsides of operating some businesses on an international scale. Think back to the floating traffic jam of 50 container ships in the Pacific Ocean waiting to dock in California in 2021. Such supply-chain snafus increasingly spurred domestic companies to bring production back to the U.S., and some foreign firms are building manufacturing plants in the U.S. to be closer to their American customers.
As the shift got under way, it became abundantly clear that the country’s aging infrastructure, after decades of underinvestment, badly needed an upgrade, from the power grid to railways, bridges, highways and airports. Politicians on both sides of the political aisle agreed. Between 2021 and the end of 2022, lawmakers decided to allocate nearly $2 trillion in federal funding and other incentives to restore manufacturing in America and upgrade the country’s infrastructure through a combination of three acts: the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and the CHIPS and Science Act.
“This massive investment could drive long-term growth for the industrials sector for years to come,” says Fidelity’s David Wagner, who runs the firm’s Select Industrials Portfolio.
More than 60,000 projects have been announced as part of the $1.2 trillion Infrastructure Investment and Jobs Act, including 10,000 bridge projects, 175,000 miles of roadway repairs and 1,100 airport modernization projects, among other things.
Nearly $60 million, for instance, will pay for a seventh runway, as well as other upgrades, at Denver International Airport. And $30 billion of the $280 billion CHIPS and Science Act has been earmarked to help fund 23 projects, including 16 new semiconductor manufacturing facilities in 15 states so far. Two years ago, the U.S. produced none of the world’s most advanced chips, according to the government. By 2032, the country will produce nearly 30% of the global supply of leading-edge chips.
Indeed, an unprecedented amount of spending is being “funneled into a relatively small area of the U.S. economy,” says Yung-Yu Ma, chief investment officer of BMO Wealth Management, who has been recommending that investors allocate a bigger percentage of their portfolio to U.S. infrastructure since early 2023. “These trends are strong and durable,” he says.
There’s room for infrastructure stocks to run
Judging by the soaring returns in some bellwether stocks, the industrial renaissance is well underway. Industrial giants such as Caterpillar (CAT), GE Aerospace (GE) and RTX (RTX) have each posted gains of more than 50% over the past 12 months – ahead of the 34% climb in the S&P 500.
There’s even an artificial intelligence (AI) angle to some infrastructure stocks that is fueling share-price increases. Mounting demand for data centers to handle AI tasks, for instance, has pushed shares in Digital Realty Trust (DLR), a real estate investment trust (REIT) that specializes in data centers, up 45% over the past 12 months. The stock now trades at a five-year-high price-to-earnings (P/E) ratio based on estimated earnings for the year ahead.
But it’s not too late for investors to cash in on the infrastructure rally. For starters, only a relatively small portion – roughly 20% – of the total money set aside in the spending bills has been spent so far. And these projects take time to get up and running. “We’re in the middle of the third inning of the infrastructure trend. There’s still a good way to go,” Ma says.
The best infrastructure stocks to buy
Given the breadth of spending that the infrastructure bills cover, there are many ways for investors to cash in on the industrial renaissance. “You’re seeing this wide array of project announcements – in the energy sector, in commercial infrastructure, public infrastructure, utilities,” says Fidelity’s Wagner. “It’s multifaceted, which is different than other up cycles in industrials. It’s not a play on one end market or one subindustry cycle.”
We’ve highlighted seven companies, in a variety of industries, that we expect to benefit from infrastructure spending. Be patient with these investments. Some may win over the near term, but most may take time to pay off.
“We’re not building these factories in days or months. They’re going to take quarters and years,” says Jason Adams, who runs T. Rowe Price Global Industrials fund. “There’s still a lot of buildout to go.” Returns and data for the investments below are through November 30, unless otherwise noted.
Aecom
(Image credit: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)
Big construction projects need to be managed efficiently, and that’s what Aecom (ACM) does. The infrastructure professional-services firm plays the role of maestro over the life of a building project. It also offers advisory, planning, design and engineering services – and more.
“Aecom is a high-quality, low-risk way to play secular growth in global infrastructure,” says Truist Securities analyst Jamie Cook, who recommends the large-cap stock.
New contracts at home and abroad are flowing in. Roughly three-fourths of the company’s business is stateside. In October, Aecom won a Texas Department of Transportation contract to provide design services for a segment of Highway I-45 in Houston. And in September, it agreed to manage the construction of a new terminal at San Diego International Airport, among other improvement projects there.
Another fourth of Aecom’s business is overseas, and last fall it won separate contracts for services in water-supply programs in South Africa and the U.K., as well as a rapid-transport project in Bangkok to design tunnels and tunnel ventilation systems, among other things.
“We expect growing demand for environmental, road and water projects to provide the company’s design and consulting service with a stable source of revenue,” says Argus Research analyst John Staszak, who rates the stock a Buy.
The recent contract wins have helped boost shares 28% since the start of 2024. Yet the stock is still relatively inexpensive. It trades at 23 times expected 2025 earnings – a discount to other engineering and research-and-development services firms, which trade at a median P/E of 26, according to Zacks Investment Research.
Eaton
(Image credit: Raymond Boyd/Getty Images)
Electricity demand is expected to soar thanks to the use of artificial intelligence, reshoring efforts, and the growing adoption of electric vehicles and renewable energy.
“We expect electricity demand to double between now and 2050,” says Bernstein Research analyst Chad Dillard. To put that in perspective, over the next five years, electricity demand could increase at an average annual pace of 1.7%, which is far faster than the 0.4% annual growth rate in demand over the past decade.
To keep up, utilities must upgrade their electrical infrastructure. Spending on electrical equipment could rise by as much as 3% to 7% per year, on average. As a result, electrical-equipment manufacturers such as Eaton (ETN) are poised to deliver double-digit earnings growth, says Dillard.
Eaton makes electrical systems and components for end users in multiple sectors and industries, including utilities, manufacturing, commercial and residential property, automakers, aviation, and technology. The company’s broad array of customers makes Eaton a beneficiary of several megatrends, including the upgrade of America’s power grid as well as the buildout of data centers. An aging airplane fleet amid a rise in air-travel demand is boosting orders for Eaton’s aerospace equipment.
Shares have climbed 67% over the past 12 months, so don’t expect a similar pop in 2025. But there’s still upside left, says UBS Securities analyst Amit Mehrotra, whose 12-month price target for the stock, $431, represents a 15% gain from the current share price.
“We think the company can sustain high-single-digit revenue growth for several years to come,” says Mehrotra – a respectable pace for a company with a $148 billion market value. The company’s plan to buy back nearly $14 billion in shares over the next four years also bodes well for the stock.
And despite the runup, Eaton’s stock isn’t expensive relative to peers. Its P/E of just 31 is a tad below the machinery and electrical equipment industry and is justified by estimates of 12% earnings growth over each of the next three years – a smidge ahead of its peers. Still, we’d be on the lookout for lower entry points to pounce on the stock.
GE Vernova
(Image credit: Piotr Swat/SOPA Images/LightRocket via Getty Images)
GE Vernova (GEV) – an energy equipment and services company – was formed last year from the merger and then spinoff of General Electric’s various energy businesses, including renewable energy, power, digital and energy financial services. The stock has been trading only since April 2024. (General Electric shareholders received one share of GE Vernova for every four shares of GE.) But given its provenance, GE Vernova is a powerhouse. Its natural gas and wind turbines generate roughly 30% of the planet’s electricity, according to the company.
That puts the firm in position to gain from the world’s rising demand for power. But GE Vernova is also a player in the transition to a larger and more sustainable electric power system. About $73 billion of the Infrastructure Investment and Jobs Act is pegged to grants that will encourage investment in energy efficiency, greenhouse-gas emission reduction and clean-energy technologies – and that’s the stomping ground of GE Vernova’s electrification business segment, which among other things is working to leverage AI to build a digital power grid.
It is possible that under President Trump, renewable energy may get less attention and money, which would be bad news for GE Vernova’s electrification business. But William Blair Research analyst Jed Dorsheimer says Trump’s nominee for Secretary of Energy, Chris Wright, is likely good news for GE Vernova’s power-generation business, which is dominated by natural gas power and represents 40% of overall revenue. The reason: Wright is chief executive of Liberty Energy (LBRT), a fracking company. (Vernova’s power business also includes hydroelectric, nuclear and steam power.)
GE Vernova’s sky-high P/E of 50 is a negative, for sure. But “the Street is underestimating the company’s growth potential,” says Jefferies Financial Group analyst Julien Dumoulin-Smith. After a 7% climb in revenues in 2024, he expects sales growth to tick up 12% in 2025 and 9% in 2026.
All of the firm’s three business segments – power, wind and electrification – seem poised to do well in 2025, he adds; its wind business has been a drag of late but is improving. For the company overall, Dumoulin-Smith estimates 40% average annual growth in earnings before income tax and interest over the next three years, due in part to pruning of the unprofitable wind business and big gains in its larger businesses, power and electrification. We’d still be choosy about entry points with this utility stock; it’s best to buy on dips.
Rockwell Automation
(Image credit: Budrul Chukrut/SOPA Images/LightRocket via Getty Images)
A significant portion of the equipment in factories dates to the 1970s and 1980s and needs an upgrade, says Morningstar stock analyst Nicholas Lieb. That works in Rockwell Automation’s (ROK) favor because the company makes equipment and software products that help factories automate their processes and operate more efficiently.
ROK’s analytic software helped Kraft Heinz (KHZ) improve the operational efficiency of its Ore-Ida potato products facility in Oregon. From peeling potatoes to packaging the products, the system increased Ore-Ida’s production capacity by 10%.
Rockwell also helps its customers maintain and update their systems. A dedicated phone line at a mill for International Paper (IP) is connected to Rockwell engineers to help monitor and troubleshoot operations. “Without this help from Rockwell, International Paper would be forced to hire another engineer,” says Lieb, which could cost the company more.
But a slump in global manufacturing has weighed on Rockwell shares over the past 12 months. Elevated interest rates (and thus higher borrowing costs) made many of the company’s customers cautious about spending on new equipment. At the same time, a surfeit of goods (a post-pandemic outcome following supply-chain challenges) prompted many manufacturers to pause production and wait for demand to catch up with supply. In its most recent fiscal year, which ended in September, Rockwell’s revenues dipped by 9% and earnings by 20%. That drag could extend into 2025.
Rockwell hasn’t been sitting on its hands. In the summer of 2024, the company announced plans to lay off 3% of its global workforce. It has been buying back stock, too. In 2024, it repurchased 2.2 million shares at an average price of $270. Even so, investors have been unenthusiastic, and the stock has gained just 9% over the past 12 months.
Though Rockwell shares are not expensive, they’re not a screaming bargain either. The stock trades at 31 times earnings, which is on par with the stock’s median P/E over the past decade. But for patient investors, Rockwell could pay off. Although a consensus of analysts expects earnings growth to contract by 2.5% in 2025 compared with 2024 levels, things will look up in 2026, when analysts project a 19% jump in profits.
United Rentals
(Image credit: Getty Images)
Reshoring requires equipment to build things. But construction companies have been opting more and more to rent equipment rather than to buy and maintain it on their own, says Jason Adams, manager of T. Rowe Price Global Industrials fund. That puts United Rentals (URI), a rental company with a large and diverse fleet of construction equipment, in good shape to benefit from large infrastructure projects.
United is already busy. It has been supplying equipment for several large-scale construction projects, including a 131-acre entertainment and shopping complex in Miami that will feature a new stadium for the city’s major-league soccer team. Smaller projects have been on pause, but as interest rates continue to fall, lower borrowing costs should spur more activity on that front, says Value Line analyst Nils Van Liew. And acquisitions of smaller companies that complement United’s business could boost growth.
The catch: Shares are up 83% over the past 12 months. They currently trade at 18 times earnings – level with the rest of the building- and construction-products market, but ahead of the stock’s 10-year historical P/E of 12. Shares could tread water while United digests recent gains.
Vulcan Materials
(Image credit: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)
Vulcan Materials (VMC) is the leading rock quarry company in the U.S. That means as more liquid natural gas facilities, warehouses, battery plants and factories are constructed here, “Vulcan is going to sell a lot of rock to build the foundations,” says Bruce Kennedy, a portfolio manager of DF Dent Midcap Growth. “Rock has been used to build roads since the days of Babylon,” he adds. “And there are no other substitutes.”
Vulcan makes money by selling crushed rock – and it pulls in even more to ship it. Many of Vulcan’s quarries and distribution yards are near fast-growing metro areas of the U.S. (cities in Texas, North and South Carolina, and Florida, for example). New permits for quarries are hard to come by, which diminishes threats from competitors, giving the company both “pricing power and low obsolescence risk,” says Kennedy. And Vulcan boasts a materials reserve of 69 years, at current levels of production.
According to Zacks, analysts expect average annual earnings growth of 14.5% over the next three years, better than the 9.6% pace the company recorded over the past five years. Kennedy expects earnings to jump 22.5% in 2025 compared with 2024. The stock trades at an above-market 32 times earnings, but that’s in line with its 10-year historical P/E.
Xylem
(Image credit: Getty Images)
The Infrastructure Investment and Jobs Act will provide $50 billion to improve our nation’s drinking water, wastewater and stormwater infrastructure. It’s the single largest investment in water the government has ever made, according to the Environmental Protection Agency. Xylem (XYL), a global water technology company, is primed to benefit because it makes equipment for water transport, treatment, testing and use.
Supply-chain bottlenecks have been a hurdle for Xylem of late, but its high-tech products, such as its smart water meters, have been in big demand, says CFRA Research analyst Jonathan Sakraida, who rates the stock a Strong Buy. When all the numbers are in, he expects them to show revenues jumped 16% in 2024 compared with 2023. That’s ahead of the firm’s five-year historical revenue growth rate of 12%.
“Xylem is benefiting from the digital transformation of the water business, with accelerating industry adoption of digital solutions,” Sakraida says. Another boost will come from updated regulations on forever chemicals and other contaminants in drinking water.
We appreciate Xylem’s environmental stewardship, and the stock has earned a place in the Kiplinger ESG 20, the list of our favorite stocks and funds with an environmental, social or corporate governance focus. But this pure-play water in-frastructure company deserves mention in a list of infrastructure beneficiaries, too.
Even so, the stock has been a bit “underappreciated” in recent months, says Sakraida, as investors realized that the allocation of Infrastructure Investment and Jobs Act funds would be more of a “slow burn” than “explosive” to the water company’s sales and earnings growth.
Shares have climbed just 12% since the start of 2024. But that means they’re a relative bargain. Xylem stock trades at 27 times expected earnings – well below the stock’s five-year median P/E of 34, according to Zacks. Analysts expect annualized earnings growth of 13% over the next three years, or a tad better than the 12% growth rate logged over the past five years.
The best infrastructure funds to buy
Investing in individual stocks can be rewarding, but some investors may prefer to diffuse the risk by investing in several companies via a focused infrastructure fund. Here are our favorites.
Global X U.S. Infrastructure Development (PAVE) is an exchange-traded fund that offers broad exposure to companies involved in “the nuts-and-bolts buildout of bridges and roads, as well as to companies that play a role in electric-grid enhancements and even companies that rent out equipment,” says chief investment officer of BMO Wealth Management Yung-Yu Ma.
The index fund boasts a robust, 22.1% annualized return over the past five years – the top return of all infrastructure funds. Trane Technologies (TT), Parker Hannifin (PH) and Eaton are the fund’s top holdings. It charges a 0.47% expense ratio.
Invesco Building & Construction ETF (PKB) holds only building and construction companies, as its name implies, and fund-tracker Morningstar classifies it as an industrials sector fund. Compared with Global X U.S. Infrastructure Development, its portfolio is more concentrated (30 stocks), and it charges a higher expense ratio (0.57%). But its five-year annualized return of 21.1% beat 93% of its industrial-fund peers.
One-third of the portfolio is devoted to homebuilder stocks, including Lennar (LEN), NVR (NVR) and PulteGroup (PHM), which Global X U.S. Infrastructure Development doesn’t own. Even so, the two ETFs share some of the same top holdings, including Trane Technologies, Martin Marietta Materials (MLM) and Argan (AGX).
We have our eye on Fidelity Infrastructure (FNSTX), though the fund is relatively new; it launched in November 2019. The 48-stock portfolio includes a slug of industrials (Waste Connections (WCN), Norfolk Southern (NSC)), utilities (NextEra Energy (NEE), Southern (SO)), real estate firms (American Tower (AMT)) and energy stocks (Williams Companies (WMB), Targa Resources (TRGP)).
But the fund’s global focus – 23% of assets are invested in foreign stocks – has been a drag. Over the past five years, Fidelity Infrastructure has delivered a 9.1% annualized return. That was not as remunerative as some of the other funds mentioned here, but it beat the typical infrastructure fund. The fund’s expense ratio is 0.95%.
Other industrials sector funds to consider include THE Fidelity MSCI Industrials ETF (FIDU); the Industrial Select Sector SPDR ETF (XLI); and the Vanguard Industrials ETF (VIS). All boast low fees and five-year annualized returns of better than 13%.
Finally, though Fidelity Select Industrials (FCYIX) manager David Wagner is relatively new, the fund has returned a cumulative 49.6% since he took over in mid-2023 – better than the 36.8% gain in the S&P 500 Industrials Sector index over the same period. The fund charges 0.69% annually.
How Trump could impact infrastructure spending
Generally, most market watchers expect infrastructure spending to continue apace under President Trump. “Historically, spending money on roads, public works, airports, ports and harbors, and various parks has been something that Democrats and Republicans agree on,” says Bruce Kennedy, manager of DF Dent Midcap Growth fund. “Representatives like to go back home for a ribbon cutting.”
Indeed, changes to any of the three major infrastructure acts – the Infrastructure Investment and Jobs Act of 2021 and the Inflation Reduction Act and the CHIPS and Science Act (both passed in 2022) – will likely be line by line, not a wholesale repeal, says Jake Schurmeier, a Harbor Capital manager of multi-asset portfolios. “Trump is a populist, and 60% of the spending under these acts goes to Republican states, so it isn’t in his interest to cut back on spending,” he adds.
The $280 billion CHIPS and Science Act passed with a lot of bipartisan support, too. “I expect by and large that will be untouched,” says Schurmeier. About $55 billion has been spent, with Intel (INTC), Micron Technology (MU), Taiwan Semiconductor Manufacturing (TSM) and Samsung having received some of the funds.
Most at risk are the environmental tax credits in the $400 billion Inflation Reduction Act. Even so, Republicans will likely “take a scalpel, not a sledgehammer,” to the IRA, says John Duncan, a principal with the Meridian Research Group, which provides insight on public policy to investors and corporations. Among the credits likely to go on the chopping block is the $7,500 credit for buyers of new electric vehicles, as well as tax credits for companies that generate clean power (solar, wind) or that develop clean energy technologies.
Finally, Trump’s America-first agenda means his administration “has a clear interest in building out America and building up America,” says Bob Robotti, founder of Robotti & Company Advisors. Whatever your politics, that bodes well for infrastructure spending and the stocks that will benefit from it.
Note: This item first appeared in Kiplinger’s Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
