We recently published a list of 10 Best Engineering Stocks to Buy for 2025. In this article, we are going to take a look at where Arcosa, Inc. (NYSE:ACA) stands against other engineering stocks to buy for 2025.
Overview of the Engineering Industry
The engineering industry is playing an increasingly significant role in today’s tech-supported world. The demand for engineering solutions is increasing globally, and this trend is expected to continue into 2025. Investments in clean energy, urban development, and transportation are driving this demand, presenting a scalable opportunity for investors to benefit from engineering companies’ potential.
According to a report by Mordor Intelligence, the global engineering services industry has remained resilient over the years, with a market size worth $1.67 trillion as of 2024. It is expected to grow to $2.04 trillion by 2029 at a compound annual growth rate (CAGR) of 4.20% between 2024 and 2029. Although the largest market for the engineering services industry is centered in the Asia Pacific region, the Middle East and Africa are showing the fastest market growth globally.
This growth is attributed to various factors, including infrastructure development, technological advancements, demand for sustainable solutions, and the need for specialized skills in infrastructure programs. Since infrastructure projects are complicated and strenuous, the demand for innovative engineering services continues to grow. In fact, data from the US Census Bureau shows that the value of infrastructure building in the US rose from $1.80 trillion to $1.84 trillion between October 2022 and February 2023. The surge in the use of digital technologies such as artificial intelligence, cloud computing, and IoT is another primary force driving the market.
Thus, the engineering sector stands out as a promising investment opportunity due to technological advancements, resilience to economic fluctuations, supportive government initiatives, and strong market demand.
The construction industry experienced a 10% increase in nominal value added and a 12% growth in gross output in 2024. According to Deloitte, construction spending surpassed $2 trillion in the US in 2024. Its employment level touched 8.3 million in July 2024, exceeding its previous high of 7.7 million in 2006. These numbers have been consistently increasing for more than a year. Similarly, the Dodge Momentum Index (DMI), which measures nonresidential building spending, was on an upward trajectory in fiscal Q2 2024. This reflects increasing confidence in market conditions among developers and owners.
Deloitte’s 2025 Engineering and Construction Industry Outlook states that there are reasons to be optimistic in 2025. The company’s analysis of the Oxford Economic Model shows that short-term interest rates are likely to fall gradually over the coming years, followed by interest rate cuts by the Federal Reserve. The improving financial and economic conditions are anticipated to positively influence construction and engineering demand across various segments.
Declining mortgage rates may also increase demand and residential construction activity. Other drivers of growth in segments such as manufacturing, engineering, and energy may include government investments through the Infrastructure Investment and Jobs Act (IIJA), the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, and the Inflation Reduction Act (IRA).
Our Methodology
We sifted through ETFs, online rankings, and internet lists to compile a list of 30 engineering stocks. We then selected the 10 stocks that were the most popular among elite hedge funds. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them as of Q3 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).
Arcosa, Inc. (NYSE:ACA)
Number of Hedge Fund Holders: 25
Arcosa, Inc. (NYSE:ACA) provides infrastructure-related solutions and products and operates in the Engineered Structures, Construction Products, and Transportation Products segments. Its Engineered Structures segment manufactures and sells specialized steel structures for infrastructure businesses, including structural wind towers, traffic structures, utility structures for electricity transmission and distribution, and telecommunication structures.
The company reported a strong fiscal Q3 2024, with its adjusted EBITDA growing significantly faster than its top line, at 39%. It generated a free cash flow of $107 million, attributed to the company prioritizing working capital management. Its consolidated revenues for fiscal Q3 2024 also increased 14%. This growth was driven by the organic improvements in the company led by engineering structures and construction products, along with accretive acquisitions completed earlier in 2024, including Ameron.
Arcosa, Inc. (NYSE:ACA) also made significant progress in its strategic transformation and completed the divestiture of its steel components business in fiscal Q3 2024. On October 1, the company announced the acquisition of Stavola, marking the largest purchase in Arcosa, Inc.’s (NYSE:ACA) history. The acquisition will allow the company to expand its aggregates footprint with elevated exposure to lower-volatility infrastructure markets.
Overall, ACA ranks 10th on our list of engineering stocks to buy for 2025. While we acknowledge the potential of engineering stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ACA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
