We recently published a list of 12 Best Infrastructure Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Caterpillar Inc. (NYSE:CAT) stands against other best infrastructure stocks to buy according to hedge funds.
Doug Rachlin, Neuberger Berman senior portfolio manager, joined CNBC’s ‘Squawk on the Street’ on January 27 to discuss why he believes that the current opportunity set in infrastructure is the best he has seen in three decades. Managing this strategy since the summer of 1996, Rachlin pointed to several factors driving his optimism. One major aspect is the role of midstream infrastructure companies in supporting energy dominance in the US. The US leads globally in propane exports, accounting for 46% of worldwide supply.
Rachlin emphasized that these investments align with principles from investors like Charlie Munger. He advocates for concentrated investing based on strong conviction rather than spreading bets thinly across many stocks. Regarding recent developments that might impact pipeline companies involved in natural gas transmission, such as news related to deep sea activities, Rachlin noted that natural gas prices reaching $4 were due to cold winter weather rather than AI-driven data center buildouts. He highlighted growth prospects for LNG exports over the next decade, which could reach up to 35 billion cubic feet per year under favorable policies initiated during Trump’s administration.
This growth aligns well with Neuberger Berman’s focus on midstream infrastructure within their broader energy transition strategy. The firm emphasizes utilities, renewables, and Master Limited Partnerships alongside traditional energy assets like pipelines critical for transporting natural gas. This is a vital component in powering data centers across the country. As LNG exports are set to double over four years (from ~13 billion cubic feet today to potentially over 25 billion cubic feet by end-2028) and possibly reach even higher levels thereafter, the demand for robust midstream infrastructure will continue growing. This scenario underscores why Rachlin views current opportunities as compelling within his long-standing career managing this sector-focused investment strategy.
The infrastructure asset management (IAM) market is booming. It was worth $37.65 billion in 2022 and is predicted to grow by 8.9% each year until 2030. This is because companies are using these services to save money on infrastructure maintenance. Industries like manufacturing and oil and gas use IAM to optimize existing assets and ensure upkeep, especially since upgrading older designs is expensive. For example, much of the US’s energy infrastructure is 25+ years old, and Europe struggles with water waste due to leaky pipes. IAM helps maximize return on assets, improving quality and productivity.
We first sifted through ETFs, online rankings, and internet lists to compile a list of the top infrastructure stocks to buy. We then selected the 12 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 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).
Is Caterpillar Inc. (CAT) the Best Infrastructure Stock to Buy According to Hedge Funds?
A construction crew operating a hydraulic shovel during a nighttime project.
Number of Hedge Fund Holders: 50
Caterpillar Inc. (NYSE:CAT) manufactures construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. It operates through four segments; Construction Industries, Resource Industries, Energy & Transportation, and Financial Products. It provides machinery, engines, and financing solutions to diverse industries worldwide.
The company’s 2024 performance demonstrates growth driven by infrastructure-related activities, despite a 3% overall sales decline. Services revenue, which is a key component tied to infrastructure maintenance and upgrades, grew 4% to a record $24 billion. This growth reflects the company’s focus on supporting existing infrastructure through connected assets, digital tools, and customer value agreements.
Looking ahead to 2025, Caterpillar Inc. (NYSE:CAT) anticipates strength in its energy and transportation segments, both heavily involved in infrastructure development. It expects growth in power generation, which is driven by demand for data centers and AI, as well as transportation led by rail services. While overall sales are projected to be lower in 2025, the growth in services and targeted infrastructure-related segments, along with a projected $2.5 billion in capital expenditure (including investments in large engine capacity), underscores the focus on infrastructure as a driver of growth.
Diamond Hill Large Cap Strategy stated the following regarding Caterpillar Inc. (NYSE:CAT) in its Q3 2024 investor letter:
“Other top Q3 contributors included HCA Healthcare and Caterpillar Inc. (NYSE:CAT). Heavy construction machinery manufacturer Caterpillar has held up better than industry peers against a challenging macroeconomic backdrop and a generally slowing construction environment.”
Overall, CAT ranks 3rd on our list of best infrastructure stocks to buy according to hedge funds. While we acknowledge the growth potential of CAT, 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 CAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
