What happened
The 6.5% gain for the S&P 500 index in June was its best monthly return since October. But stocks in the industrial sector did even better. Three standouts were construction equipment supplier United Rentals (URI -0.02%) and steelmakers Nucor (NUE -0.26%) and Cleveland-Cliffs (CLF -1.92%).
United Rentals shares soared 33.4% for the month while Nucor and Cleveland-Cliffs returned 24.2% and 20.7%, respectively, according to data provided by S&P Global Market Intelligence. It was a combination of macroeconomic and sector-specific developments that drove those outsize gains.
So what
The main catalyst driving investor excitement in leading industrial companies is optimism for the economy and investments for infrastructure projects. At its Investor Day presentation on May 31, United Rentals pointed out several strong tailwinds it sees over the next five to 10 years and beyond. Large construction projects are being supported by funds allocated from the infrastructure bill, domestic growth in semiconductor manufacturing, electric vehicle and battery plants, and liquified natural gas (LNG) and renewable energy investments.
Investors also see evidence of a resilient economy that could avoid a recession as the rising interest rate cycle comes closer to an end. Last month, in fact, the Department of Commerce released a major revision to first-quarter gross domestic product (GDP) growth from the original 1.3% estimate to 2%.
With all the macro tailwinds in mind, there are also more reasons these companies will specifically benefit. United Rentals has leading market share in its sector with 17%. Privately held Sunbelt, its closest competitor, holds 13%. Nucor is North America's largest steelmaker while Cliffs is the largest supplier of steel to the automotive industry. Both are seeing cash flow and profits rebound as steel pricing moved higher in June.
Now what
Nucor is particularly well positioned to profit from infrastructure improvements. More than half of its business is directly tied to the construction sector and contributions from energy projects are growing. The company created a towers and structures segment last year when it acquired a producer of metal poles and other steel structures for utility infrastructure. Last month it announced the location for a second facility for the production of utility structures including transmission towers. Nucor CEO Leon Topalian said the segment was created "to meet the growing demand for utility infrastructure from renewable energy projects, EV charging network expansion and grid hardening.
That looks to be a well-timed move into this area. Edison Electric Institute, an industry trade group, expects that utilities will invest about $159 billion in 2023 and $155 billion in 2024. That would be the most in the almost 25 years that the group began tracking spending. That is also up from the $140 billion estimate the institute projected for 2023 just over one year ago, according to a recent Wall Street Journal report.
Nucor's production plants will be in position to supply the materials needed to replace aging equipment and prepare for an expected increase in power demand from growing electric vehicle adoption as well as strengthen their systems to withstand severe weather patterns.
Investments in these areas and others are beginning to boost these businesses. Cleveland-Cliffs and other steelmakers announced price increases last month thanks to rising demand.
Infrastructure investing trends are boosting industrial companies like United Rentals, Nucor, and Cleveland-Cliffs. Investors are starting to notice, helping to push these stocks to big gains in June.
