In this article, we’re going to talk about the 7 best engineering stocks to invest in.
Is the Engineering Sector Going to Boom?
In an era where infrastructure and technology converge, the engineering industry stands as a cornerstone of economic growth and innovation. As we navigate through the remaining months of 2024, the demand for robust engineering solutions, ranging from construction to advanced manufacturing, has surged, driven by significant investments in transportation, clean energy, and urban development. This dynamic landscape presents a unique opportunity for investors looking to capitalize on the potential of leading engineering firms.
The global engineering services market is booming, with its size estimated at $3.26 trillion in 2023 and projected to grow at a compound annual growth rate of 5.5% from 2024 to 2030, as reported by Grand View Research. Several factors are driving this growth, including technological advancements, infrastructure development, and the demand for sustainable solutions. Automation, AI, and the IoT are becoming increasingly adopted, leading to enhanced productivity and efficiency. Rapid urbanization, government investments in infrastructure, and a focus on eco-friendly practices due to stringent environmental regulations are also contributing to the market’s expansion.
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With strong market demand, technological advancements, resilience during economic fluctuations, and supportive government initiatives, the engineering sector stands out as a promising investment opportunity. Moreover, a new report from the Global Infrastructure Hub reveals a significant global infrastructure investment gap. To meet the demands of a growing population and a rapidly urbanizing world, $97 trillion will be needed by 2040. This includes $94 trillion to support economic growth and an additional $3.5 trillion to meet the UN Sustainable Development Goals for water and electricity access.
The report underscores that current spending trends fall short of these needs. An annual investment of $3.7 trillion is required to bridge the gap, which is equivalent to Germany’s annual GDP. To meet the SDGs for water and electricity, an additional $236 billion per year is necessary. The US faces the largest infrastructure funding gap, estimated at $3.8 trillion. China, on the other hand, has the highest demand, requiring $28 trillion in investment. The report highlights the critical role of infrastructure in achieving the SDGs. However, current investment trends are insufficient to meet the targets for water and electricity access.
To address this challenge, governments and the private sector must collaborate to mobilize significant funding. This includes exploring innovative financing mechanisms, such as public-private partnerships, green bonds, and impact investing. By investing in infrastructure, countries can unlock economic growth, create jobs, and improve the quality of life for their citizens. However, failure to act could lead to significant economic and social consequences.
As this month began, Sadek Wahba, I Squared Capital founder and chairman, also a member of President Biden’s Advisory Council, joined CNBC’s ‘Squawk Box’ on October 11 to discuss the economic toll of hurricanes in the context of investing in America’s infrastructure.
Recovery efforts are underway following the devastation caused by Hurricane Milton, which has left many communities grappling with significant damage. Sadek Wahba emphasizes the pressing need for resilient infrastructure to withstand future storms and climate changes. Early reports suggest that the extent of the damage from Hurricane Milton is greater than initially anticipated. The infrastructure challenges posed by such storms raise critical questions about how to fortify communities against future disasters. The discussion pivots to the broader issue of infrastructure investment and who should bear the costs associated with building resilient systems capable of withstanding climate-related events.
Wahba noted that the willingness of citizens to pay for infrastructure improvements is crucial. Over the past 70 years, the US has invested less than 2% of its GDP in infrastructure, while China has consistently invested around 8% over the same period. This stark contrast highlights the urgent need for increased investment in US infrastructure to address vulnerabilities exposed by recent natural disasters. The $1.2 trillion infrastructure bill passed under President Biden aims to tackle these issues but requires additional funding sources, including user fees and private capital investments. When discussing what an appropriate investment level might be, Wahba emphasized that both quantity and quality matter. Funding through taxes versus private capital carries different implications for how infrastructure is developed and maintained. He points out that user fees, such as tolls on roads and public transportation fares, are essential for sustainable funding models. However, he acknowledged that there are challenges associated with ensuring equitable contributions from all users.
There are also regional disparities in willingness to fund infrastructure projects. Some individuals may resist contributing to recovery efforts in areas like Florida or Texas if they feel disconnected from those communities’ needs. Wahba argued that a state-by-state approach will be necessary for effective policy-making and funding allocation. He also highlighted the critical need for improvements in water resources across the US. With 55,000+ water authorities, 90% of which are government-owned, many systems are underfunded and struggling to provide quality water access to millions of Americans.
In the aftermath of Hurricane Milton, the urgent need for resilient infrastructure has brought attention to engineering stocks that are well-positioned to benefit from increased investment in rebuilding efforts. Engineering companies are at the forefront of providing innovative solutions to enhance infrastructure resilience against climate-related challenges. With the US historically underinvesting in infrastructure compared to countries like China, there is a significant opportunity for these engineering firms to step in and deliver essential services.
With that, let’s explore the 7 best engineering stocks to invest in.
Methodology
We sifted through ETFs, online rankings, and internet lists to compile a list of 15 engineering stocks with high market caps. We then selected the 7 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Best Engineering Stocks to Invest in
7. TopBuild Corp. (NYSE:BLD)
Market Cap as of October 22: $11.47 billion
Number of Hedge Fund Holders: 42
TopBuild Corp. (NYSE:BLD) is a leading installer and specialty distributor of energy-saving insulation and related building material products across the US and Canada. It installs and distributes insulation solutions and building materials to residential and commercial construction projects, focusing on providing high-quality products and services to its customers.
The company reported a 3.67% year-over-year increase in sales to $1.37 billion in the second quarter of 2024, driven by pricing strategies, increased volume, and recent acquisitions. On a segment basis, Installation grew net sales the highest by 5.2%, where residential sales grew by 6.7%. Some of this growth was offset by the 1.9% decline in commercial sales.
The recent acquisition of Texas Insulation expands the company’s spray foam capabilities in a significant and growing market. This acquisition further highlights opportunities for growth through acquisitions in its core insulation business. long-term fundamentals remain strong, supported by the housing shortage in the US, increasing household formations, the possibility of lower interest rates, and growing demand for energy efficiency.
TopBuild Corp. (NYSE:BLD) is well-positioned for continued growth and profitability. Management anticipates improved fiberglass supply in H2 2024 and is confident in its ability to pass along price increases. Productivity initiatives and effective management of underperforming branches have positively impacted profitability. Despite project delays in the commercial segment, strong bidding activity is expected to persist. The completion of 6 acquisitions in 2024 has added over $100 million in annual revenue.
6. Primoris Services Corp. (NYSE:PRIM)
Market Cap as of October 22: $3.40 billion
Number of Hedge Fund Holders: 42
Primoris Services Corp. (NYSE:PRIM) is a specialty construction and infrastructure company based in the US, focusing on pipelines for natural gas, wastewater, and water. It offers services, like pipeline construction, electrical transmission and distribution, and environmental remediation, operating through a network of strategically located offices.
Q2 2024 revenue stood at $1.56 billion, up 10.64% from the second quarter in 2023, driven by strong growth in the Energy segment, which was up 25% driven by solar and industrial construction. The Utility segment was down 4.4% due to a decrease in gas operations activity and a major substation project that was completed in the prior year, offset by increased transmission and substation work for the renewables customers and increased activity in communications. Despite lower revenue, gross margins improved slightly to 10.3% compared to 10.2% in the prior year.
Primoris Services Corp. (NYSE:PRIM) secured ~$1.1 billion in new projects in Q2 and early Q3, including 800 megawatts of battery storage. These projects span multiple customers and states from California to New York. It also achieved a $55 million milestone in bookings for the Premier PV eBOS solutions. Premier PV is a growing business within renewables, specializing in utility-scale products like combiner boxes, disconnects, wire harnesses, and other eBOS solutions.
The company’s financial performance has improved significantly, with increased revenue, higher margins, and stronger cash flow. This positive trend is expected to continue, driven by strong execution and strategic investments, making it a top stock to consider.
5. Emcor Group Inc. (NYSE:EME)
Market Cap as of October 22: $20.95 billion
Number of Hedge Fund Holders: 45
Emcor Group Inc. (NYSE:EME) is a mechanical and electrical construction, industrial and energy infrastructure, and building services company comprising over 100 operating companies, in ~180 locations. Services include electrical construction, mechanical construction, energy solutions, and facility maintenance.
Despite the recent AI data center boom, the company’s strong growth trajectory is primarily attributed to its deep relationships with hyperscale data center customers, domestic semiconductor firms, and clean energy component manufacturers. In the second quarter of this year, the company generated $3.67 billion in revenue, representing a 20.40% year-over-year increase.
Mechanical and Electrical Construction segments are leading this growth, with organic revenue growth exceeding 33% in Mechanical Construction and 18% in Electrical Construction for Q2. The company is strategically positioned in attractive geographies and market sectors, securing a healthy mix of projects and executing them with precision and innovation. It excels in high-demand market sectors like high-tech and traditional manufacturing, network and communications, data centers, institutional, and healthcare, which are benefiting from long-term secular trends.
The Industrial Services segment along with the Building Services segment has demonstrated strong growth, with increased demand for both shop and field services. The Electrical business within this segment has experienced a surge in demand from traditional upstream and midstream customers, as well as renewable fuels projects. The UK business is performing as expected, with progress in pipeline development and business development efforts.
The company’s robust financial position, evidenced by a record-high revenue pipeline of $9.0 billion, coupled with strategic acquisitions totaling $173 million, positions Emcor Group Inc. (NYSE:EME) for continued growth and success in the market. Investments in key segments such as Mechanical Construction, Building Services, and Industrial Services provide a solid foundation for future expansion.
TimesSquare Capital U.S. Small Cap Growth Strategy stated the following regarding EMCOR Group, Inc. (NYSE:EME) in its first quarter 2024 investor letter:
Many of our Industrial positions provide necessary business-to-business operational services, highly technical components, automation & efficiency improvements, or essential infrastructure services. EMCOR Group, Inc. (NYSE:EME) supplies electrical, mechanical, and facilities services. The company’s strong results fueled a 62% increase in the stock price. Highlights from the quarter included improved margins and a record level of backlog. We trimmed the position on this strength.
4. MasTec Inc. (NYSE:MTZ)
Market Cap as of October 22: $9.97 billion
Number of Hedge Fund Holders: 47
MasTec Inc. (NYSE:MTZ) is a multinational infrastructure engineering and construction company that provides engineering, building, installation, maintenance, and upgrade of energy, utility, and communications infrastructure. It operates through a network of subsidiaries and joint ventures, serving a diverse customer base in both the public and private sectors.
In Q2, the company secured a major 700-mile, high-voltage transmission and substation project, valued between $300 million and $500 million annually. This project represents a significant milestone in the strategy to pursue large transmission projects. While the transmission project development cycle remains challenging, management is optimistic about recent bipartisan legislation in Washington.
Growth remained on track in the second quarter of 2024, driven by progress in both the wireless and wireline markets. The Nokia Ericsson swap out with AT&T progressed as planned, and the company is experiencing robust growth in its wireline business. Revenue growth for Q2 was 3.03%, recording $2.96 billion in total revenues, with an earnings per share value of $0.96. H2 2024 revenues are expected to increase organically by ~20% compared to the previous year.
The recent transmission project win is a significant milestone for the company, positioning its Power Delivery segment for long-term success. The Clean Energy & Infrastructure segment will also benefit from increased investments in power generation. Combined with the growing demand in telecom and the stability of the Oil and Gas pipeline segment, MasTec Inc. (NYSE:MTZ) is well-positioned for the future.
As a leading construction firm with a broad geographic reach and strong financial stability, MasTec Inc. (NYSE:MTZ) is well-positioned to capitalize on the burgeoning AI data center market and the increasing demand for high-speed wireless connectivity. With its strategic focus on expanding its presence in the energy sector, the company is poised to benefit from long-term growth opportunities in this market.
FPA Queens Road Small Cap Value Fund stated the following regarding MasTec, Inc. (NYSE:MTZ) in its Q2 2024 investor letter:
“MasTec, Inc. (NYSE:MTZ) is a contractor that builds and repairs infrastructure for telecoms, electric utilities, oil and gas pipelines, and the clean energy industry. The company benefits from strong spending for 5G in telecom and government support (including the Infrastructure Investment and Jobs Act) for clean energy and the electrical grid. The Mas brothers have an impressive history of rolling up smaller players and growing earnings, most recently in the electrical and clean energy spaces. However, we became uncomfortable with the low margins and competition in the electrical utility and clean energy businesses. On Aug 4, 2023, in its Q2 2023 earnings release, the company reduced guidance, and we began to exit our position, partially in Q3 2023 and fully by the end of Q4 2023.”
3. APi Group Corp. (NYSE:APG)
Market Cap as of October 22: $5.91 billion
Number of Hedge Fund Holders: 52
APi Group Corp. (NYSE:APG) is a leading provider of safety services focused on end-to-end integrated occupancy systems (fire protection services, HVAC, and entry systems), including design, installation, inspection, and service. It serves a diverse customer base in the energy, industrial, and commercial sectors.
In Q2 2024, the company’s revenue dropped 2.32% year-over-year, still recording a strong total amount of $1.73 billion. Specialty Services revenues decreased by 18.4%. Organic revenue declined 15.3%, driven by a 21% decline in project revenues. Service revenues were down 10%.
Despite the decline, it has strategically focused on more profitable projects. This initiative has been particularly successful in the international HVAC and Specialty Services businesses. While federal funding, permitting, and customer delays contributed to the reduction in project revenue this quarter, these are temporary setbacks. The impacted revenue is expected to contribute meaningfully to the full-year 2024 revenue.
It completed 6 bolt-on acquisitions, including Elevated Facility Services, and is progressing towards its long-term value creation goals. It anticipates a positive impact on margins from its business mix and is optimistic about achieving an adjusted EBITDA margin of 13% or more by 2025. It aims to reduce net leverage below 2.5x by the end of the year while maintaining its M&A strategy. Additionally, the company has ~$400 million remaining under its share repurchase authorization.
The company’s strategic focus on the data center market, coupled with its disciplined acquisition strategy and commitment to margin expansion, positions it for robust growth in the second half of 2024 and beyond. APi Group Corp.’s (NYSE:APG) deep industry relationships, regulatory protections, and ability to serve large-scale clients provide a solid foundation for long-term success.
Greystone Capital Management stated the following regarding APi Group Corporation (NYSE:APG) in its Q2 2024 investor letter:
“APi Group Corporation (NYSE:APG) has been in and out of client portfolios since inception (mostly in) and has earned our trust by carrying over the founding culture of the business on its route to becoming public, while increasing their focus on growing the more durable and higher margin fire safety services segment.
The start of 2024 has been a busy one for APG with the recent retirement of their Series B Preferred stock, along with the acquisition of Elevated Facility Services Group, a leading provider of contractually based maintenance and repair services for elevator and escalator brands. I was thrilled to see this deal announcement given the revenue and EBITDA contributions, but also because management likely sees similar opportunities to grow non-discretionary recurring revenue by winning incremental service work…” (Click here to read the full text)
2. KBR Inc. (NYSE:KBR)
Market Cap as of October 22: $9.44 billion
Number of Hedge Fund Holders: 56
KBR Inc. (NYSE:KBR) operates in the fields of science, technology, and engineering, working in various markets including aerospace, defense, industrial, and intelligence. It is a global engineering, construction, and services company with two primary businesses, government solutions and sustainable technology solutions.
It has been actively expanding its capabilities through acquisitions and strategic partnerships. In Q2 2024, it announced an agreement to acquire LinQuest, an engineering and data analytics company, to bolster its ability to deliver advanced technological solutions. The company recently achieved a significant milestone with the selection of its proprietary ROSE technology by Zhejiang Petroleum for its largest unit in China. It also secured contracts in Brazil, established training centers in Iraq, extended support for programs in Australia, and expanded supply in Europe.
The company is a pioneer in the green ammonia market with 10 projects underway, including a groundbreaking venture in India. Although blue ammonia is currently more widespread due to its lower cost, its technology is at the forefront of both blue and green ammonia production. The company’s technology is being utilized in the world’s only two blue ammonia projects that have received final investment decisions.
Q2 2024 revenue increased by 5.82% year-over-year to $1.86 billion driven by segment growths. Government revenue grew by 3%, driven by growth in international defense and intelligence (up 11%) and science and space (up 5%). Funding delays related to the Ukraine conflict impacted readiness and sustainment activities, leading to a decline in this segment. Employee engagement reached a record high of 70%, up 10% this year.
The company offers sustainable and net-zero solutions, including consulting, integrated solutions, petrochemicals, clean fuel technologies, modular solutions, hydro-PRT, AI, data management, cybersecurity, defense modernization, advisory, nuclear energy, and asset management. KBR Inc. (NYSE:KBR) holds a unique position in the industry and is set for growth.
Cove Street Capital Small Cap Value Fund stated the following regarding KBR, Inc. (NYSE:KBR) in its Q2 2024 investor letter:
“On the plus side, KBR, Inc. (NYSE:KBR) has been a strong performer so far YTD on the back of an investor day in the second quarter that highlighted the success of the last four-year plan (2020-2023) before laying out ambitious but credible targets for the next 4 years (2024- 2027). Since 2020, KBR has pivoted their commercial business away from high-risk EPC projects to a more differentiated IP-first consulting approach that now sees 20% EBIT margins and contributes 40% of their overall profitability. KBR has cleaned up their balance sheet by settling convertible notes and warrants and now sits at a healthy 2x net leverage. With the upcoming ramp of a $20B government services contract with the U.S. army, the company is well positioned to generate cash and return value to shareholders.”
1. Quanta Services Inc. (NYSE:PWR)
Market Cap as of October 22: $46.17 billion
Number of Hedge Fund Holders: 63
Quanta Services Inc. (NYSE:PWR) provides infrastructure services for electric power, pipeline, industrial and communications industries. It offers a wide range of services, including the planning, design, installation, program management, maintenance, and repair of most types of network infrastructure.
Revenue made in the second quarter of 2024 totaled $5.59 billion, marking an improvement of 10.81%, along with a record total backlog of $31.3 billion and strong cash flow. The company’s results reflect the strength of its portfolio, effective execution, and continued demand for its services, driven by customers’ multiyear programs to build renewable generation and power grid infrastructure.
Its collaborative solution-based approach is highly valued by clients, particularly in the context of the ongoing energy transition and infrastructure upgrades. Its strategic initiatives and goals for the coming years are expected to drive significant growth. The company’s diverse service lines and geographic reach expand its total addressable market, providing opportunities for resource allocation and operational efficiencies.
Quanta Services Inc. (NYSE:PWR) recently completed the acquisition of Cupertino Electric for $1.54 billion, including $1.3 billion in cash and $225 million in Quanta shares. The deal includes a potential additional payment of up to $200 million based on financial targets. This acquisition is expected to immediately boost Quanta Services Inc. (NYSE:PWR)’s growth, cash flow, and earnings per share, with projected contributions of $175-$195 million to adjusted core profit and $0.40-$0.50 to adjusted diluted earnings per share for FY25.
The company’s diverse service offerings and strategic focus on infrastructure investment position it well for long-term growth in the evolving energy landscape. With a robust financial position and commitment to operational efficiency, it is well-positioned to capitalize on attractive opportunities.
Artisan Mid Cap Fund stated the following regarding Quanta Services, Inc. (NYSE:PWR) in its fourth quarter 2023 investor letter:
“Along with DexCom, notable adds in the quarter included Quanta Services, Inc. (NYSE:PWR) and Jabil. Quanta provides outsourced skilled labor for maintenance and construction services, primarily to utilities. We have followed the company for over a decade and have witnessed its shift from oil and gas to renewables. The energy transition (solar and wind farms, electric vehicles, etc.) requires investments in the US energy grid to support greater electrification. At the same time, climate change is increasing stress on the existing grid, forcing utilities to increase maintenance spending. Furthermore, Federal incentive programs, such as the Inflation Reduction Act and Bipartisan Infrastructure Act, will help fuel Quanta’s long-term growth given its expertise in transmission and distribution connections as renewable energy infrastructure seeks to connect to the grid. The stock sold off early in the quarter on concerns that higher interest rates would lead to a pullback in renewables investments by utility customers. However, based on our industry research, we think Quanta’s key customers are well resourced and committed to meeting long-term electrification needs via infrastructure investment. We used the selloff as an opportunity to move the position into the CropSM at a more attractive valuation.”
As we acknowledge the growth potential of Quanta Services Inc. (NYSE:PWR), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PWR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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