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Will Hot Stocks Near Record Highs Get Bigger Boost Next Month?

The House’s late Tuesday announcement that it will vote on a $1 trillion infrastructure bill by late September has boosted hot stocks in the infrastructure sector.




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The Senate on Aug. 10 passed the infrastructure bill, which includes funds to rebuild the electric grid, expand renewable energy and help tackle the effects of climate change. It will also be used to repair roads and bridges, and provides new funding for rail.

Steel producers, energy companies, rail operators, construction gear makers and other building-related stocks stand to gain if the House vote passes. Investors have plenty of related stocks to add to their watchlists.

Or, they could consider an exchange traded fund that focuses on infrastructure stocks. Take Global X U.S. Infrastructure Development ETF (PAVE), for instance.

The $4.5 billion fund, which turned four years old in March, is benchmarked to the Indxx U.S. Infrastructure Development Index. The index is designed to track companies poised to benefit from increased infrastructure activity in the U.S.

Hot Stocks Build Solid Gains

PAVE has produced solid gains since its launch. Going into Friday, the ETF was up 28%, beating the S&P 500’s 19% year-to-date gain. Average annual returns over the past one and three years were 60.8% and 17.9%, according to Morningstar Inc. The SPDR S&P 500 ETF Trust (SPY) returned 32.4% and 18.1% for the same periods.

In a recent report, Global X ETFs noted that if passed, the bill could help remedy the country’s chronically underfunded and deteriorating infrastructure for years.

“The potential for additional spending on clean energy and social infrastructure would take this a step further and could reshape the future of the United States,” Global X ETF research analyst Andrew Little wrote. “In our view, such spending will translate to revenues for companies involved in infrastructure development and that derive a significant share of their revenues from the U.S.”

Industrials account for PAVE’s biggest sector weight at nearly 71% of assets, while materials are next at 22%. Smaller positions in utilities, information technology, consumer discretionary and financials make up the rest.

Nucor, Deere Among Top Stocks

Top 10 holdings included Nucor (NUE), Eaton (ETN), Emerson Electric (EMR), Deere (DE), Kansas City Southern (KSU) and Fastenal (FAST). All of these hot stocks are at or near record highs.

Together, the top 10 totaled just north of 90% of the 99-stock portfolio.

Steel giant Nucor has more than doubled in price this year. It’s extended from a 111.07 buy point of a cup base, according to MarketSmith chart analysis. A 99 Composite Rating puts it at the top of the 15-stock steel producers group. A 93 Earnings Per Share Rating also places it among the group’s hot stocks.

Deere, the farm and construction gear maker, has rallied more than 40% this year. The stock is close to a 388.62 buy point of a cup with handle. Deere, with a 93 IBD Composite Rating, is one of the hot stocks in the farm machinery group.

The PAVE ETF is within striking distance of a 27.66 flat-base buy point. It briefly climbed past the entry earlier this month. Shares have found support above the 10-week moving average the past five weeks, a bullish sign.

PAVE charges a 0.47% expense ratio.

Follow Nancy Gondo on Twitter at @IBD_NGondo

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