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THIS LITTLE-KNOWN INFRASTRUCTURE STOCK IS POISED TO SURGE IN 2025

By John Persinos • October 9, 2024 • Stocks to Watch

Printable PDF

Editor’s Note: Remember those beaten-down stocks everyone loved to ignore in
2023? Well, they’re back with a vengeance. As economic growth kicks into high
gear, the market’s former laggards are taking a victory lap, proving that
sometimes the tortoise really does beat the hare. Below, I spotlight an
erstwhile underperformer that’s now leading the charge.

--------------------------------------------------------------------------------

This week, as I scoured the investment landscape for little-noticed growth
opportunities, a stock caught my eye: Advanced Drainage Systems (NYSE: WMS),
which operates in the cyclical infrastructure and construction sector.

With a market cap of $12 billion, the company’s valuation hovers near the
mid-cap threshold, which means it has a greater ability to move the needle than
large cap companies but possesses greater stability and financial wherewithal
than small caps.

Based in Hilliard, Ohio, WMS specializes in manufacturing water management
products used in construction, agriculture, and public infrastructure—industries
sensitive to macroeconomic conditions like interest rates and inflation.

Infrastructure companies like WMS are rate-sensitive due to their reliance on
capital-intensive projects and long-term investments. As interest rates fall in
the coming months, borrowing costs for governments and private sectors will
decrease, likely resulting in increased infrastructure spending. This will
create more demand for water management systems, a core focus for WMS.

A BENEFICIARY OF SECTOR ROTATION

The cyclical nature of WMS’s industry positions it to benefit from sector
rotation. In 2023, industrials and utilities lagged due to rising rates and
inflation fears, but with the Federal Reserve now easing monetary policy, these
sectors are taking the lead. WMS, operating at the intersection of
infrastructure and utilities, will attract investors as they rotate into these
traditionally defensive sectors that are now poised for growth.

In 2023, the stock of Advanced Drainage Systems experienced volatility,
ultimately trending lower by the end of the year. The company faced a
challenging economic environment, with construction sector slowdowns impacting
demand for its stormwater management solutions.

However, as you can see from the following chart, WMS has been on an upward
trajectory in recent weeks:



WMS hovers above its 20- and 50-day moving averages. The stock’s Relative
Strength Index (RSI) is about 53, within the bullish zone.

WMS benefits from its focus on sustainable water management, which gives it a
strategic advantage in securing contracts for environmentally friendly projects.
The company has maintained solid margins even during inflationary periods
because its products are seen as crucial for environmental, social, and
governance (ESG) initiatives. As inflation remains subdued, WMS can expand
margins, improve profitability, and outpace competitors.

The company’s potential is further supported by the U.S. government’s multi-year
infrastructure spending programs, particularly the Biden administration’s
bipartisan infrastructure bill. WMS is well-positioned to benefit from the
ongoing push for improved stormwater systems, drainage solutions, and
sustainable water management.

What’s more, the severe damage caused this month by hurricanes Helene and Milton
will generate substantial work for companies like Advanced Drainage Systems.

UNDER-THE-RADAR

While infrastructure giants like Caterpillar (NYSE: CAT) or Vulcan Materials
Company (NYSE: VMC) dominate headlines, WMS has escaped the attention of many
large institutional investors due to its smaller size. However, with earnings
growth expected to pick up as interest rates decline, this under-the-radar stock
should experience outsized gains as its revenue base expands with new projects
in 2025.

WMS’s products are aligned with growing global trends in sustainability. Its
focus on recycling plastic to manufacture drainage systems caters to the
increasing demand for environmentally friendly solutions. This makes it a
favorite for governments looking to implement green infrastructure projects.

WMS generates revenue from multiple sectors, including residential,
non-residential, agriculture, and public infrastructure, which diversifies risk
and increases resilience in economic downturns.

ON TRACK FOR EARNINGS GROWTH

The company has been investing in expanding its manufacturing capacity and
improving operational efficiencies, which positions it for significant revenue
growth as demand ramps up.

The average analyst expectation is for Advanced Drainage Systems to rack up
year-over-year earnings growth of 10.50% in the third quarter and 9.70% in the
fourth quarter.

As interest rates fall, inflation wanes, and economic growth accelerates,
Advanced Drainage Systems is poised to benefit from increased infrastructure
spending, sector rotation into cyclical industries, and a favorable government
policy environment.

WATCH THIS VIDEO: Jim Fink Reveals the Keys to Unlocking Wealth

Editor’s Note: My colleague Jim Fink has made a fortune for himself trading
options. Now that he’s a millionaire, he’s ready to tell all.

As chief investment strategist of Velocity Trader, Jim Fink has devised a
methodology that generates market-thumping gains…in up or down markets and
regardless of political uncertainty.

One of the most important presidential elections in our lifetime is just around
the corner. Many investors are nervous and hunkering down. But not Jim.

In a new presentation, Jim Fink explains the simple strategy he uses to rake in
gains of 104%, 164%, and 203%…in as little as 72 hours.

Can Jim’s election-year trades really be this profitable? Click here to find
out.

--------------------------------------------------------------------------------

John Persinos is the editorial director of Investing Daily.

Subscribe to John’s video channel:

 


ABOUT THE AUTHOR

John Persinos
Bio | Archive
John Persinos is the editorial director of Investing Daily, overseeing such
publications as Personal Finance, Utility Forecaster, Profit Catalyst Alert,
Rapier's Income Accelerator, Income Forecaster, and Marijuana Investing Daily,
among others. John also writes the Mind Over Markets daily stock market recap,
and he's the chief investment strategist of Marijuana Profit Alert.

 
John has decades of experience in the technology and political realms. He has
worked as a staff editor at Inc. and Venture magazines, and written for
Kiplinger's, Street Authority, Investing Answers, and TheStreet.com, to name a
few. In a career that has spanned more than 40 years, John has been diligently
and prolifically covering the news and its impact on investors.

 
John also has experience with the inner-workings of Capitol Hill, serving as a
press secretary to U.S. Rep. Byron Dorgan (D-ND). John started his career as a
daily newspaperman with The Orlando Sentinel.

 
John holds undergraduate and graduate degrees from Boston University. He also
completed the Davenport Fellowship in Business and Economics Reporting at the
University of Missouri (Columbia).

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