These 3 Stocks Are Beating the S&P 500 in 2024. They Could All Do It Again in 2025.

It’s been an excellent year for equities, and one of the standout investment themes was the construction and infrastructure sector. In particular, companies that use emerging technologies to add value to their solutions for their customers have outperformed.

Here’s why positioning and workflow technology company Trimble (TRMB 0.88%), heating, ventilation, and air- conditioning (HVAC) building-controls business Johnson Controls (JCI 1.68%), and automation company Emerson Electric (EMR -0.01%) can crush the market again in 2025.

Trimble growth is just getting started

This company’s growth strategy involves leveraging its traditional positioning hardware and integrating software solutions to make it an essential part of its customers’ daily workflows. This is especially important in the infrastructure and construction industries, notorious for incredibly complex projects that often result in significant delays and cost overruns.

That’s where Trimble’s cloud-based construction management software suite, Construction One, comes in. It’s a tool that allows contractors, subcontractors, engineers, and project managers/owners to plan, estimate, monitor, and manage projects in real-time using digital data gathered from the real world. Its rapid adoption is fueling growth in the business’ most important segment, namely its architecture, construction, engineers, and owners (AECO) segment.

That segment is responsible for 55% of the company’s current annualized recurring revenue (ARR) and is currently growing ARR at a mid- to high-teens rate.

Management sees the AECO segment as driving its long-term outlook for low- to mid-teens ARR growth overall, leading to similar earnings growth, which will drop down into significant cash flow generation given its asset-light business model and a shift in the revenue mix toward a higher share of software.

With digital penetration of the construction and infrastructure industries only just starting and a dire need for greater transparency, accuracy, and control for large-scale projects, Trimble has plenty of room to grow. It remains one of the best long-term growth stories in the sector.

Johnson Controls is positioning itself for long-term growth

This company describes itself as being a “global leader in engineering, manufacturing, commissioning, and retrofitting building products and systems, including residential and commercial HVAC equipment, industrial refrigeration systems, controls, security systems, fire detection systems, and fire-suppression solutions.”

However, management is on a mission to focus on the commercial-buildings end market, and for that, it’s in the process of selling its residential and light commercial HVAC business to Bosch for $8 billion. The divestiture makes sense and frees up management’s time to capitalize on its most significant growth opportunity, namely retrofitting commercial buildings with smart products and services that help reduce emissions (so owners can meet their net-zero aims) and significantly improve building energy efficiency.

Just as with Trimble, the key is the growing adoption of digital technology and how it amplifies the value added in Johnson Controls’ solutions. In this case, the company’s OpenBlue digital software platform integrates artificial intelligence, the Internet of Things (IoT), advanced analytics, and real-time data collation to create smart buildings.

The growth opportunity is significant given that the buildings and construction sectors account for 37% of global emissions.

And its divestiture of its noncore residential and light commercial HVAC business will result in a more focused company and $6.7 billion in proceeds. Furthermore, management already has a plan to cut annual expenses by $500 million over the next few years. This all adds up to a company with excellent long-term growth prospects.

Emerson Electric is automating the future.

Just like Trimble and Johnson Controls, Emerson Electric has been transforming itself by using mergers and acquisitions to focus on its core growth opportunity: automation and associated markets.

Its automation, industrial software, and test & measurement solutions help customers optimize facility operations. As such, they are a key part of the capital investment and construction plans of process, hybrid, and discrete manufacturing plants. Examples of these include chemical processing plants (process), tire factories (hybrid), and automotive plants (discrete).

Like Trimble and Johnson Controls, it has a significant growth opportunity through the increasing adoption of digital technology and industrial software. Still, in this case, it comes from automation and the growing use of intelligent devices, software control systems, and instrumentation, which enhance the benefits of its automation solutions.

There’s little doubt that automation and smart facilities are the solutions to the problem of cost-effectively reshoring production from low-labor-cost countries. In any case, the value added by implementing digital technology is significant. Any investment in manufacturing or logistics plants in the developed world needs to consider the role of automation.

While its end markets have been somewhat challenged by a cyclical slowdown in the economy in 2024, Emerson Electric’s outperformance reflects the underlying trend toward adopting automation in manufacturing, which will only increase if lower interest rates spur investment in 2025.

Are these stocks to buy?

In all three cases, management has refocused the companies on their core activities and growth opportunities, rewarding shareholders in the process. Similarly, all three companies will grow with the increasing adoption of digital technology. This winning combination could help them significantly outperform the market again in 2025.