What are we looking for?
U.S. President Joe Biden announced a sweeping US$2-trillion infrastructure plan in March. This would include allocations of US$621-billion to transportation infrastructure, US$111-billion for water systems and US$100-billion to improve the electric grid.
Canada has long been one of the top exporters to the United States, so are there any under-the-radar industrial manufacturing companies that could benefit from a U.S. infrastructure push?
The screen
To begin our analysis, we used FactSet’s Universal Screening tool to pull all publicly traded securities listed on any Canadian exchange.
Next, we only included companies that derive at least 50 per cent of their revenue from the U.S. Then we screened for companies classified as “industrial manufacturing” or “infrastructure construction services,” according to FactSet’s proprietary industry classification system.
Furthermore, we looked for stocks that may be more favourably priced and selected those that are trading at least 20 per cent lower than their most recent 52-week high.
Last, we only included companies with a market capitalization between $100-million and $2-billion in order to identify names more likely to fly under the radar, while excluding penny stocks. We ranked our results according to revenue exposure to the United States.
For informational purposes, we have also included one-year and year-to-date returns, price-to-sales ratio, and most recently reported (past 12 months) sales and EBITDA figures. EBITDA stands for earnings before interest, taxes, depreciation and amortization, which is an alternate profit metric especially relevant for smaller companies that are often too small to report consistent net income.
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What we found
The pandemic brought the manufacturing industry almost to a halt in 2020, leading to substantial revenue declines. This year has seen that trend reverse, with the U.S. economy picking up and industrial demand growing. Most of the six companies in the accompanying table – none of which pays a dividend – have had a strong year thus far, with an average year-to-date return of 48.1 per cent, which could be further bolstered by Mr. Biden’s infrastructure plan.
Mission Ready Solutions Inc., a decontamination service provider and military personnel protective equipment manufacturer, topped our screen with 100-per-cent revenue exposure to the U.S. and a 36-per-cent discount from its 52-week high. COVID-19 has led to a surge in demand for sanitization and cleaning services, as indicated by Mission Ready Solutions quadrupling its sales between Sept. 1, 2019 and Sept. 1, 2020 (not shown). The stock has gained more than 1,000 per cent over the past 12 months.
GreenPower Motor Co. Inc., an electric vehicle manufacturer, ranked No. 2 with a 99.7-per-cent revenue exposure to the U.S. and an increase in stock price of more than 1,200 per cent over the past 12 months. GreenPower Motor’s surge came alongside other electric vehicle manufacturers in 2020 after Tesla’s addition to the S&P 500 index. The largest part of Mr. Biden’s US$621-billion transportation infrastructure proposal is a US$174-billion investment in electric vehicles, from which GreenPower Motor may benefit. The shares are now trading at a 48.2-per-cent discount to their 52-week high.
Only H2O Innovation Inc., a water treatment provider, managed to report a positive EBITDA in its most recent financials. Slightly more than half of the US$111-billion water infrastructure proposal is committed to modernizing U.S. drinking water, storm water and wastewater systems, which could lead to additional business for H2O Innovation.
The information in this article is not investment advice. FactSet assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.
Arjun Deiva, CFA, is a vice-president at FactSet Canada’s consulting division.
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Arjun Deiva, CFA