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This is the Value Investor podcast with Tracy Reinek, all things value, all the time.
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Welcome back, value investors. So we're in the middle of a semi market pullback. It's not real extreme now that we are at war with Iran and there's a lot going on in the Middle east, but there are some stocks that have pulled back off their highs more than the overall markets have done. And as value investors, it's time to look at some of those. Now, I wanted to look at the AI infrastructure stocks this week because even without the Iranian war, these stocks were soaring to new all time highs going into this last earnings season. And now they have, some of them at least have pulled back. So some of these I would consider to be on sale. If you were concerned about buying at the all time highs, which many of us are, then now is your chance because you're getting a little bit of a pullback here, some more than others, but at least you're no longer seeing the stock rising every day and getting nervous a little bit about stretched valuations. Now, a lot of these AI infrastructure stocks are not necessarily classic value stocks, but given their growth trajectory, I still like the story and I would still be a buyer of These stocks with PEs in their 20s, for instance, and maybe we can get a PEG ratio that is close to 1 or maybe even under 1 given the earnings growth on some of these. So if I could get those things, I do consider it to be a value and I do think that most investors should own at least one or two of these stacks in their portfolio, regardless of whether or not they're a pure play value investor or a growth investor. If you're a growth investor, then the, the door is wide open to these. But I think investors need to move beyond just the chip names on the AI trade or memory, move beyond that and even move beyond the tech companies that are creating AI products because the billions of dollars that are being spent by the Mag Sevens and other companies in this year and next year are going to go to building out this infrastructure. First you've got to have the data centers. You've got to have the power to power the data centers. You have to have the cooling of the data centers and even the racks in the data centers. So yes, I'm still obsessed with the data centers, but because it is the infrastructure that is the road for everything else that comes after it. And it's going to take a couple of years to build this out. So this is, dare I say it, a golden age for some of these old economy Stocks, stocks that are in H Vac, in the cooling side stocks that are in construction now. There's always been demand for construction. We've always had to build hotels, bridges, you know, highways. All that stuff has been going on. And then you get an occasional boom where we were building a lot of offices, for instance, or on the residential side, you know, housing boom was going on. But not in a while have we seen this happen on the industrial side, like the data centers I would put on the industrial side or utilities. Utilities is kind of slow going, you know, takes a while to get approved to build something like a new nuclear reactor or a power plant or that kind of thing. But the data centers aren't really waiting around. They are willing to go with the turbines, for instance, which are a little bit easier and will give them the power at least until they can figure out something else in order to run that data center. So this is a booming period, like I said, the golden age for some of these old economy stocks that have been around a long time. And so I want to be in it. And it's still attractive on valuations, so that is a good thing. And while some of these stocks are trading near their five year highs, as I mentioned, they have pulled back off of those highs. Some it's only 3 to 5%, but others it's been a little bit more. So why not take a look at some of these, Maybe keep a wish list. Maybe you might want to buy in on these pullbacks. None of us know what's going to happen with the war and whether or not stocks will see even a bigger pullback. But March has notoriously been a kind of volatile month for stocks, with or without a war. And we've seen the pandemic sell off. We saw the peak of the NASDAQ in the dot com bubble. Various things have happened in March. Last March we had the Liberation Day sell off towards the end of the month, into April. So yeah, there's a lot that goes on this month. So dollar cost average might be your friend on some of these, but I'm definitely keeping an eye on a list. I'm only bringing you three today, but I do have a longer list than just these three. And this is an area that it's a little hard to find the stocks in because we actually don't have a category that just says AI Infrastructure Stocks. You kind of have to look at. I use the Zacks rank, I look at the Zach's rank and I look to see what stocks have recently been then upgraded to Zach's number one ranks. That means the earnings estimates are being raised and many times I have just found stocks off of that and I've looked in areas like electronics obviously engineering, construction, you know, any of these kind of old economy infrastructure type areas. Even just manufacturing of some sort. I will click on it to see if they aren't making something that is going towards the infrastructure side. There are a lot of products being made right now for the power generation side and so you might find some AI infrastructures stocks in there outside of the construction and the engineering angles. And then of course there's the cooling side too. Those stocks haven't pulled back quite as much off their highs but they're off a little bit. I'm not going to talk about one today or maybe I will just throw in one at the end because I have been following those as well and if I could get those cheaper I would would definitely be a buyer on any bigger pullback Even you know, 10% pullback on some of those because they're just a little too stretched in valuations for me on the cooling side. Okay, so let's just dive right in on some of these because again I found some of these just kind of poking around couple I found on because they were about to report earnings and I had not heard of the company and it had the keyword construction in it and then some as I mentioned I found just looking at the Zach's number one ranks. So you do kind of have to drill in because it's not going to say outright even in the company description sometimes but odds are they are mentioning data center or even AI infrastructure. I've seen them mention that now in some of their earnings press releases. So but I'm bringing them to you today so you don't have to do the work. Okay. The first one out the gate is Everest Construction Group. That's E V E R U S. This is the one I'd not heard of before. It is ticker ECG and one of the reasons I had not heard of it before was because they only were spun off into a public company in 2024. So they really haven't been on the radar of the rank or any of us really since 2024 unless you were really paying attention and following the company that they were spun off of. Okay. So they're also listed in the industry on saks.com of building products-miscellaneous so that's a little bit cryptic, right? So you wouldn't necessarily know. But it does have construction. So their tagline is building America's future. They do electrical and mechanical and they do transmission and distribution projects. This is all on the side of the data centers, obviously and getting on power. They have 70 locations across the US where they're doing projects. They're headquartered in North Dakota. So I kind of like that. A lot of these stocks, you know, they're nowhere to be found in Silicon Valley. And that's also why I like them. That's why I also describe them as old economy. Right. Let's spread the wealth of the AI revolution around the country and outside of the west coast or even the east coast, big cities and get them into other areas. And Everest construction is definitely that. But again, they are nationwide. So what's going on with them? They are have pulled back off of their highs. They reported earnings only about a week ago. And while it was great, the stock did spike and now they're pulling back a bit off of those highs. So they're not back to the pre earnings level when nobody knew who they were and no one was paying any attention. They also did guide 2026 above the Zack's Consist census. But there are small cap, I believe. Let me look. There's small cap company. Oh no, they're mid cap 5.9 billion. But they're just not heavily covered on the Street. We only have two analysts on them, so nobody's really again paying any attention. And they were kind of falling behind on the 2027 or no 2026 consensus, but also 2027 now too. So earnings up 40.6% in 2025 and expected to be up 5.3 in 2026 and 7% in 2027. So not as great at earnings growth as what we might hope to see given the valuation. So Forward P is at about 28 now because of this spike off the earning, but it has pulled back a little bit here after that earnings report and after the market has done its thing as well. So it's down about five and a half percent in the last five days. And I'm recording this on March 4, 2026. So this is in response to the Iran war and so it has come off a little bit, but if I could get this one even a little bit cheaper on even a bigger pullback, you know, like I was mentioning earlier, like a 10% pullback, then I would be more thrilled. Price to sales isn't too pricey at 1.6. It's not under 1, which is where we look to get those sales really cheap. But it's pretty cheap for, you know, what we're looking for. So they do not pay a dividend. And like I said, this is on the construction side. They are building the data centers. So that's what we like. Earnings expected to be $4.16 now for this year up from 379. And then they're looking for 445 next year up from 381. So if you're looking for a construction side, keep this one on your watch list. But again, many of us were like hitting ourselves that we didn't notice it in time before this earnings report where the stock has really soared. So look to buy on weakness and you know, hopefully getting it a bit cheaper here. But those estimates going in the right direction and it's Zach's number one ranked strong buy now as a result. So ticker E as in Edwards, C as in Charles, G as in George. Go check it out, listen to their earnings call and put a new stock on your list. Okay. The second one is one I've talked about many times. I own it in the value investor and in my own personal portfolio. We bought it in 2023 sterling infrastructure. But in full disclosure, I also bought it in my portfolio for 20 in 2024 I think it was. I did buy it a bit later after the value investor bought it. But the earlier this year I did buy some extra shares on a pullback and this stock has had quite a few pullbacks. If you look at the chart, it had a big one heading into the liberation day. Then it had a big one at the end of last year and that's when I added to my position. Now it's back trading near its all time highs after its earnings report. It has pulled back a little bit here as well. Kind of like the Everest group has maybe got a little too hot into the number and valuations a little stretch. So this one has pulled back sterling 10% off of its recent highs after that earnings report. That's why I feel like it's on sale here and you should at least be putting it on your watch list. Now if I could get it even cheaper back into the 300 range because right now it's trading at 419. It did trade closer to 450 just around the earnings report in anticipation of that earnings report. But if I could get it into the threes like it was in late 2025, that would be fantastic place to get in. Now where are the valuations? They are a little bit higher than what we were talking about with Everest forward. PE is at 33.9. So that is a little stretch, but now that it's pulled back 10%, it's not quite as stretched. Earnings grew 78% last year. It's hard to round trip off of that, but it's doing it but up 12.6 expected in 2026 and another 18.9 in 2027. Now this is the engineering side of things. They're building the data centers, but they also are doing second generation Amazon warehouses. So they're not a one trick pony, which is also why I like them. And because the data centers are so hot and the demand is so high. And really a lot of the mag sevens and the hyperscalers are kind of willing to pay whatever it takes just to get these data centers built and just to hire the people they need to do it. And they've got the money, so they are able to pay more. And that is helping with the margins on someone like Sterling. So those margins are being elevated on some of this work. We do have estimates on the rise. It's a number two buy after that earnings report. We have one estimate higher for this year and another one for next year. We only have 3 analysts on it for earnings for 2026 and 2 on 2027. So this company isn't really highly covered either. A lot of these construction and engineering firms, like I said, don't really get the Street's attention because it was rather boring for many years. Right. Even when they're building the distribution centers. That was the old economy, kind of dull, but not anymore. So we're relying on these few analysts who are on to tell us what's going on. It must be an exciting time for them in their careers to finally be in the thick of some kind of revolution, which they are. So earnings for this year expected to be 1225, up from 1195 after that earnings report. And then next year 1457, that's down a little bit off of 1501, but one estimate is only higher over there for right now. Now, as I mentioned, the valuations is at 33.9. Price to sales is stretched, don't get me wrong, 5.1 and a PEG of 2.2. So everything else is on the more growthy side. But again, we're looking for AI infrastructure stocks on sale. I still like the growth, the growth in all of these names and I expect it to go through 2027 at a minimum. And so again, we're looking to get them on sale. I'm not saying these are dirt cheap by any means. So Sterling is one of the more expensive stocks. That's probably why we did get the pool back here even on solid earnings because it just got a little overstretched here. So look to buy on the sales. If it goes into the 300 range that's even more attractive than where we are right now. But we are down 10% off those highs with rising earnings estimates. That's a good combination. That's what I like to see. So that's Sterling Ticker STL. Okay, the third stock I just discovered when I was writing the Zack's Bull of the day which are Zach's number one ranked stocks and I looked at the new list and I wrote down a couple names that I thought could be in the AI Revolution category. I looked through several were but one really stood out and it's Flow Serve Ticker F as in Frank Ellison, Larry S and Sam. Flow Serve is X number one rank as I mentioned and they do flow control. Now this seems really old economy. This company was actually founded in 1997 but it was a merger of several companies and over the years it's been merging because Flow control has been around for forever and right now on AI generation or AI Revolution it's going to the power generation side of things but it's controlling lots of flows. And this company is under in the industry, manufacturing, general industrial because it is making these products. So I guess it is general industrial. Where else would we put it? But this company actually traces its heritage all the way back to 1790. If that's not old economy again, I don't know what is. But this one did hit a new five year high on its recent earnings report where it talked about the demand that it's seeing going into 2026, especially on that power generation side. But it has pulled back off of the highs. So again it's giving us a little bit of an opportunity. So it's not fear of missing out right now because things have cooled off a little bit. I wish I could get it even a little bit more of a cool off but it is down 8.9% over the last week. So I'll off those highs. You know that that is considerable. I, I do wish as I mentioned that I could get it at you know, say 15 off. But this is the type of stock where people do get tired. Oh, I see. Actually it's off almost 10 now. Things can change at a moment's notice when you're looking at a real time chart. But if I could get it even cheaper I would be very excited to do so. But this is the cheapest stock valuation basis out of the three that we are covering today. So it trades with a forward p of just 20.3. So that is much more attractive because this is a stock that most people are definitely ignoring even though it's at the five year highs. But it's not on anybody's radar for data centers or power or any of that. It has a market cap of 10.6 billion, so it's fairly sizable. And it does pay a dividend yielding about 1% right now and it recently raised that dividend 5%. So they are shareholder friendly and they are sharing some of the wealth with us. So we like that. PEG ratio is at 1.85 right now. So that's not dirt cheap, but it's not super pricey because those estimates are being raised here. So 2025 earnings were up 38.4% and they've been up since 2023. Double digits and then 2026 they now expect 12.9%. They did guide above the Zach's consensus, 2027 another 13.6%. And this is one where the valuation isn't super stretched yet. So five estimates are up for this year since the earnings report and two for next year. Nobody's cutting. We're looking for 411, it was looking for 393 for this year and then next year 467, they were looking for 426. So this is some nice moderate growth. Double digits, I'm liking it. And the demand is just there and so I'm liking that as well. This again is not as stretched as some of the others. That's why I was excited to find it trading in the low 20s on the PE and hopefully, you know, we can get it even lower if it continues to pull back here a bit and if the overall market continues to see some weakness here in March. These are the types of stocks that, you know, had the big run up that are going to see some more of the pullback. So be patient. You don't have to fear missing out with any of these AI infrastructure stocks on, on this side of the equation, not on the chips and other things, but even on the chip side. It's not like we haven't had time to buy Nvidia for the last six months and that stock has pulled back too. So even Nvidia is on sale here. So keep that in mind when you're looking at these. Now, another area that I just, I said at the beginning I would mention it. So I will And I have been looking around at at the cooling side, but these stocks not off quite as big as some of the other ones I just mentioned. So they are still a little more stretched on valuation. But I would be putting some of them on your watch list and I keep talking about them on various podcasts because the cooling side is so hot. So the one I want to talk about is Comfort Systems Ticker F I X. It's kind of just quietly going about its business, right? It's, it's near the all time highs. It is a Zach's number one rank. You must never see it mentioned on any of the stock shows. Nobody's mentioning it, you know, on CNBC or Fox Business or rarely do they mention it. 48 billion market cap. This is not a small company does pay a small dividend, just 0.2%. It's now trading at 37 times after its earnings which of course were very good. So 2025, 97.8% on the earnings growth side. You would think you were looking at Nvidia when you look at this. To be honest, they've been green every year since 2023 on earnings and sales. 2026 earnings expect to be up 28.1 on 20% sales growth. 2027, a little bit of cooling, 16.2% on 10% sales growth. But it's a little early to be thinking about 2027 although you know, soon we will be. But forward PE 37 on the PE there. So it is a bit stretched. You normally wouldn't hear Comfort Systems on a value investor podcast, right? Does have an 8F for the style score for value. Not surprising. Price to sales 5.38. Price to book is at 20. So all of this is fairly stretched. But again, if I could get this on a pullback, then it is on sale and I'm buying the growth. But I do want to get the growth as cheap as possible. That's the whole point of being a value investor, to get it cheap. So it's not really off the highs though. While everything else is pulling back, Fix is down less than 1% over the last five days. And so it's not really pulling back on anything going on in the Middle east here over the last month it's still up 20%. But all the stocks I've talked about today over the last month are in the green. Actually even with their pullbacks, the other stocks are still hanging out in the green. And year to date Fix is still up 42%. Year to date, Everest is up 33% sterling, 31% flow serve is the laggard at 17.5. And then we have the S&P 500 up 0.5% only less than 1% year to date. But not these AI infrastructure stocks. So the street is still catching up to these people have their eye on other stories like the software stocks that have pulled back big off their highs. But I do feel the momentum. The earnings are telling us that this is the place to be. This is where the money is being spent. That 600 or 700 billion, whatever it's up to for 2026 now that the hyperscalers are spending on AI, it's not all going to anthropic or open AI or Grok. It's going to building out the infrastructure to run those products. And these are the companies that are cashing in. So this is great. Good for the economy as I mentioned and good for those of us who are poking around in these companies and all the who work at these companies as well because they thought they were in just the boring construction or H Vac area. And again it is not that boring anymore. So keep fix on your radar. I've been watching it for a long time. It has had some pullbacks even year to date it hasn't been straight up but it hasn't had the one like we're seeing with the other three stocks right now on the Iran war we have had 5% to 10% pullbacks in Everest, Sterling and Flow serve off of their highs. And so if I can get even more, get it cheaper then dollar cost averaging is what you should be doing in some of these or start a position and then dollar cost average obviously in them. But Flow Serve the cheapest with the PE right around 20. But a lot of these names have had big runs. They're not as cheap as they were but as value investors we still can get them cheaper. So let me recap the tickers again. We had Everest which is E as in Edward, C as in Charles, G as in George. That's the newer company only spun off in 2024. Then we have Sterling which is the engineering company. Ticker S as in Sam, T as in Tom, R as in Robert, L as in Larry. Flow serve, that's a new one. A new one. On our list of AI infrastructure stocks, Flow control on the power generation side, Ticker F as in Frank, L as in Larry, S as in Sam. And then H Vac can't leave them out. Comfort systems F as in Frank, I, X as in X Ray fix. So as always I aim to bring you as many value stocks as I can or stocks that might not be pure value plays but that go on sale like I covered with the software stocks not too long ago. And then I'm. I'm definitely going to be looking at some of these commodities as this war plays out. We haven't talked about energy in a long time. What's going on there? Could this be the time to buy energy again? I'm going to cover that probably next week as we watch to see how this plays out. So that would be the middle of March. We're also still getting some earnings reports in from some of the energies the exploration and production companies are still reporting. So we're getting those numbers in. It'll be interesting to hear what we find out from them. A lot of them are more US domestic. That could be good right here because I have heard of some rumors, not sure if it's confirmed that some of the big oils are moving their employees out of Middle east right now for obvious reasons. So that could cause some disruption perhaps to some of the big oil players that are there. And that would be Exxon and those types of companies. Total bp, those companies. So, so let's see what develops. But I do want to talk about energy, so be sure to subscribe. You can get us on Zach's podcast channel. I know many of you are subscribing over there and like our podcasts because then they'll get sent out on the algorithm to more people there and they'll find us too. But it's a great place to listen to podcasts. It's audio only on YouTube where we have many of our other podcasts podcasts that are covering everything that's going on out there. We have our earnings podcast. We have John Blank on basically what's going on in the global markets and the global economy. He talks about that on two podcasts every month. We have Nina Mishra's ETF Spotlight. She's covering everything that's going on from an ETF angle and she often has really great guests on. If you subscribe there, you'll get them all. Make sure you get get those notifications when a new one launches and I definitely will be back next week with some more value stocks.
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This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this podcast without seeking the services of competent and professional legal, tax or accounting counsel. Publication and distribution of this podcast is not intended to create and the information contained herein does not constitute an attorney client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities companies, sectors or markets identified and described were or will be profitable. All information is current as of the date herein and is subject to change without notice. Any views or opinions expressed may not reflect those of Zack's investment research as a whole.