Investor Essentials Daily

This company is positioned for growth in the U.S. infrastructure boom

April 2, 2024

The U.S. has long neglected its infrastructure, leading to deterioration and inefficiencies highlighted by the COVID-19 pandemic.

This has prompted significant investment, notably the $1.2 trillion Bipartisan Infrastructure Bill, to modernize the country’s infrastructure and manufacturing capacity.

Terex Corp (TEX), specializing in materials processing machinery and aerial work platforms, stands to benefit from these developments due to its focus on sectors poised for growth from infrastructure and renewable energy investments.

Despite short-term industry challenges, Terex’s strategic positioning and global presence position it well for long-term growth and value creation, leveraging the supply chain supercycle and government investments in infrastructure, chip manufacturing, and climate initiatives.

Investor Essentials Daily:
Tuesday News-based Update
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Yesterday, we talked about the supply chain supercycle and how it is going to improve the U.S.’s infrastructure and manufacturing capacity drastically.

The United States has underinvested in infrastructure for many years, leading to widespread deterioration across the country.

Bridges in the U.S. are increasingly structurally deficient, and water main breaks occur frequently.

Corporate assets are also aging, reaching their oldest levels in over two decades, and an estimated $500 billion is needed to restore asset values to 2001 levels.

The COVID-19 pandemic demonstrated the consequences of outdated infrastructure, spurring calls for substantial modernization investments. This push was further driven by concerns about geopolitical tensions and supply chain vulnerabilities exposed during the crisis.

In response, the $1.2 trillion Bipartisan Infrastructure Bill was passed in 2021, representing a major national commitment to infrastructure upgrades.

The investments under this bill are expected to boost demand in several industries like construction, engineering, and telecommunications which will be critical to the modernization efforts.

Another winner of this decade of high investments is going to be Terex Corp (TEX).

Terex manufactures materials processing machinery and aerial work platforms that are used in manufacturing, construction, infrastructure projects, recycling, and electrification.

All of these areas are expected to receive increasing investments thanks to the supply chain supercycle.

This trend is supported by the Infrastructure Investment and Jobs Act, CHIPS Act, and Inflation Reduction Act, which were recently passed by the U.S. government to invest billions into rebuilding aging infrastructure. This will boost domestic chip manufacturing and tackle climate change through renewable energy projects and electrification.

The company has recently divested its lower-margin businesses like cranes to focus on its higher profitability segments like materials processing machinery and aerial work platforms.

This strategic move positions Terex well to capitalize on the long-term demand driven by the megatrends of rebuilding infrastructure, expanding manufacturing capabilities, and transitioning to renewable energy and electric vehicles.

While the construction industry may face a slowdown in the short run due to rising interest rates and inflation, the multi-year infrastructure bills and global trends toward sustainability are expected to continue driving investments and growth opportunities in Terex’s core markets.

The market seems to be focusing too heavily on the potential near-term volatility and not appreciating the company’s stronger positioning for long-term structural tailwinds.

Terex’s history and global footprint also provide advantages to serve customers across sectors and regions for many years to come.

Terex is well-positioned for sustainable growth and value creation over the long run.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research

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