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Stock Strategist

Three Stocks to Play the Global Infrastructure Buildout

Global industrial infrastructure is big business, and these firms will benefit.

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Over the last month, we significantly upped our fair value estimates for some of the largest companies in the global industrial equity markets, namely the multi-industry conglomerates  General Electric   (GE),  Siemens (SI), and  ABB Ltd (ABB). These companies rank 2, 42, and 164, respectively, in terms of market cap on the global equity stage. The stocks have soundly trounced the global equity indexes over the last 12 months with ABB and Siemens rocketing up 104% and 88%, respectively, compared with 37% for the MSCI World Index. GE has turned in a 28% total return, a respectable rise for the second-largest company in the world by market cap.

Despite the runup, we think the stocks still offer attractive value to investors. We've identified four key factors among our industrial infrastructure suppliers that are fueling substantially higher cash flows and improved financial results: 1) productivity benefits from business restructuring; 2) a favorable sales growth outlook due to massive investment in global industrial infrastructure; 3) more shareholder-friendly business decisions driven by increased attention to return on invested capital, and 4) relatively new management teams taking fresh looks at the strategic positioning of their businesses. In this article, we examine these factors and make the case that restructuring actions coupled with favorable macro trends will boost returns on investment at global industrial infrastructure companies and drive above-average returns for equity investors.

Tom D'Amore does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.