Global X US Infrastructure ETF Up 27% This Year – Time to Buy PAVE Stock?

Global X’s US Infrastructure Development ETF (PAVE) is up more than 27% this year while it is already up 2% in August as well as Congress has finally approved a long-awaited $1.2 trillion infrastructure bill.

The funds from the bill, which aims to renovate the country’s aging infrastructure, will be primarily invested in ramping up important areas like transportation, broadband, and utilities, while major construction projects will also be approved for repairing thousands of miles of highways that run across the country and over 45,000 bridges that the White House has qualified as being in “poor conditions”.

Multiple companies in the United States are expected to benefit from the deployment of these resources and Global X’s US Infrastructure ETF offers exposure to them, offering a decent degree of diversification for conservative investors.

That said, is this a good time to buy infrastructure stocks? The following article takes a closer look at the latest price action seen by this fund while also analyzing its major holdings to see if there could still be an opportunity to jump on board now that this important bill has been passed by the Senate.

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PAVE Stock – Technical Analysis

Even though market participants were already expecting that this bill was going to be passed by Congress, yesterday’s price action in PAVE stock shows that volumes ticked higher once the approval of the bill was confirmed.

Trading volumes doubled the 10-day average while the price of the ETF was up 2.2% at $27.09 per share. Moreover, this morning’s pre-market action is pointing to another strong higher opening at an indicated price of $27.3 per share for a 0.7% gain.

Momentum indicators seem to show that the latest downtrend that the ETF experienced after it reached an all-time high on mid-May is possibly reversing, with both the Relative Strength Index (RSI) and the MACD embarking on an uptrend as they have been posting a series of subsequent higher highs and higher lows.

Moreover, the short-term moving averages are about to post a golden cross, a setup that is traditionally interpreted as a bullish signal.

The long-dated trend line shown in the chart above remains the most important support to watch for this infrastructure ETF while the $27.6 all-time high is the resistance to overcome at the moment for bulls to initiate what could be an acceleration in the latest uptrend.

PAVE Stock – Fundamental Analysis

According to data from ETF Database, PAVE is a widely diversified infrastructure-focused fund that holds more than 100 individual stocks in this sector, with its top 15 holdings currently accounting for 44% of the fund’s assets.

Top holdings include Nucor (NUE), Eaton Corp (ETN), Trane Technologies (TT), Deere & Company (DE), and Emerson Electric (EMR), all of which account for over 3% of the fund’s portfolio.

Since 2021 started, Nucor, Eaton, and Deere have contributed the most to the fund’s positive performance, while Atkore Inc.(ATKR), The Manitowoc Company (MTW), and Herc Holdings (HRI) are also top-performers even though their weight on the fund is fairly small.

At least 70% of the fund’s holdings are in the industrial sector, this being the second best performing sector this year behind the materials sector, which accounts for 22% of the fund’s portfolio and has generated returns of 50.6% so far this year.

The price-to-earnings ratio for the fund currently stands at 17, which is not at all stretched considering the positive momentum that the entire sector is living. Moreover, fund flows show that PAVE has received over $2.93 billion in net inflows since the year started, accounting for over 70% of its current assets under management.

Global X’s US Infrastructure ETF currently manages $4.14 billion and charges a 0.47% expense ratio. Moreover, the fund offers an annual dividend yield of 0.36% that is paid every quarter.

Atkore Inc (ATKR) – An undervalued infrastructure pick

Upon analyzing the composition of PAVE, Atkore’s remarkable performance this year came to my attention and upon taking a closer look at the company it seems that this firm could emerge as a strong winner once this infrastructure budget starts to be rolled out.

Atkore supplies critical components and products for protecting electrical circuitry and other similar installations. These products will be crucial for building the country’s electric vehicle supporting infrastructure and considering that at least $7.5 billion have been earmarked for the construction of charging stations the firm’s top and bottom-line results could experience a significant tailwind once these resources start to be deployed.

Atkore’s sales have already been on an uptrend amid price increases the company has managed to pass on to customers during the latest supply shortages. A few days ago, the company reported a 122% jump in sales during the third quarter of its 2021 fiscal year compared to a year ago and the company revised its Adjusted EBITDA guidance for the year to $875 million as a result of a prolonged shortage-related tailwind.

At its current market capitalization of $4 billion, the company is being valued at only 4.5 times its Adjusted EBITDA for the year – a fairly conservative multiple and more so upon considering that the market might not be pricing the higher sales that could come as a result of the construction of charging stations across the US.

Moreover, the company is taking advantage of this unexpected jump in its top and bottom-line results to reduce its debt – a move that could lead to an upward revision of its trading multiples and price targets.

Among the companies that stand to benefit from the infrastructure bill, Atkore is certainly one to watch as the market seem to be missing the growth that could come from its participation in the construction of critical EV-related infrastructure.

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