The past year or so has not been great for growth stocks, but if you subscribe to Warren Buffett's view that investors should be greedy when others are fearful, then now could be a good time to start picking some up. In my view, maintenance equipment company Alamo Group (ALG -2.88%), positioning technology company Trimble (TRMB -0.73%), and infrastructure software company Bentley Systems (BSY 2.47%), are all stocks with bright near-term and long-term futures -- not least because they have heavy exposure to infrastructure spending. Here's the lowdown on why you should think about adding them to your portfolio soon.
Remember the Alamo Group
You may not know this company, but there's a high likelihood you've seen some of its products in action on the road. Alamo Group manufactures a wide range of vegetation and infrastructure management equipment, such as snow plows, roadside mowers and cutters, spreaders, small-scale excavators, and land-clearing and land-shaping equipment.
As such, its key end-market customers are governmental bodies and related contractors undertaking infrastructure maintenance.
While the headlines around President Biden's $1.2 trillion infrastructure law focused on the funding it would dedicate to rebuilding crumbling roads, bridges, water networks, and other major civil engineering projects around the country; all of these reinvigorated works will also need to be maintained, as will the rest of our existing infrastructure.
In common with many of its industrial sector peers, Alamo suffered from rising raw material costs, supply chain issues, and a tight labor market in 2022. Still, despite the pressures those headwinds put on its costs and margins, its net income rose by 19.2% in the first nine months of the year, and Wall Street analysts have 16% earnings growth penciled in for 2023 -- backed up by the $909 million backlog it reported at the end of the third quarter.
If the cost pressures ease as the company laps high energy and steel prices from 2022, and if the cooling economy makes labor more available, Alamo could find itself in a sweet spot of stable end demand, strong backlog, and moderating costs. Meanwhile, its long-term growth prospects look favorable as maintaining infrastructure will remain an essential part of the economy.
Working together with Trimble
Positioning technology company Trimble sells hardware, software, and services that help engineering and construction, agriculture, and transportation customers improve efficiency in the activities they perform every day.
The roots of the company lay in its positioning and sensing origins -- think of geospatial mapping or the monitoring of trucking fleets. However, the next stage of its journey lies in Trimble embedding itself further into its customers' daily workflows by offering them modeling and analytics that they can use to generate actionable insights.
For example, trucking and logistics fleets can be made more efficient by reducing mileage and increasing truckloads. Using Trimble's precision agriculture solutions, farmers can reduce their insecticide and herbicide usage, automate field operations, and generate significant efficiency gains.
Meanwhile, in construction and engineering, Trimble's technology can play a key role in helping companies reduce waste, costs, and delays by precisely monitoring and controlling construction activity. This is a particularly relevant issue for large-scale infrastructure projects that are highly complex and may involve myriad contractors, some of which will have limited experience with projects of such scope.
Wall Street analysts expect Trimble will grow its net income by double-digit percentages over the next few years, and its long-term opportunities for revenue growth and margin expansion are significant, as it should experience accelerating growth in its higher-margin software and services segment as its offerings become more widely embedded in its customers' workflows.
Bentley Systems, the infrastructure software company
As noted above, infrastructure projects tend to be highly complex, often suffer cost overruns, and involve a huge amount of consultants and contractors who traditionally come together under project managers, but who tend to work separately.
While it's easy to respond churlishly as taxpayers when we hear about those cost overruns, it's worth remembering that civil engineering projects are often huge undertakings -- dams, rail networks, bridges -- of a sort that aren't completed very often. Building a bridge is quite different from manufacturing televisions in a factory. In the second case, companies have many opportunities to refine their processes and find ways to cut their per-unit production costs. In the first, they don't.
Moreover, most of the valuable information and data that infrastructure companies could use to improve their projects during the design, construction, modeling, and maintenance phases has traditionally been too dispersed to be effectively used to those ends.
Bentley's infrastructure software solutions can dramatically help the process by collating the data and allowing all parties involved to collaborate better over the long lifecycle of a project -- not least via the creation of a digital virtual model (a so-called "digital twin") of the project, which can be simulated using real-time data from the physical world.
If the federal government is going to spend $1.2 trillion on repairing and rebuilding the country's infrastructure (a figure that does not include the long-term maintenance costs), then it would be good if those dollars could be used as productively as possible. Bentley's solutions are a good place to start.
