The Biden administration has certainly built up an impressive expenditure plan as of late, with significant lessons and leads for investors.
Following the passage of the $1.2 trillion Infrastructure and Jobs Act in November, the eyes of the administration have quickly turned to President Biden's flagship Build Back Better (BBB) Act. The two acts could collectively allocate nearly $3 billion to a number of administration priorities if the latter is passed in its current form.
The odds of it passing in the Senate are quite high, per expert onlookers and analysts.
Given this spending plan, many investors are licking their chops over the sectors expected to see major inflows. Indeed, as passage of the bill in the Senate could come as early as Christmas, time is of the essence to adjust or reposition portfolios.
Eyes on Infrastructure
Prior to examining the BBB bill that still awaits Senate approval, the recently passed infrastructure act is very much worth investor attention.
The bill largely targets roads and bridges, transportation, broadband internet provision, and clean energy and water. Specifically, $110 billion is set aside for roads and bridges, $66 billion for passenger and freight rail, $25 billion to airports, and $17 billion for port infrastructure.
On these infrastructure focused endeavors, Brent Thielman, Managing Director and Senior Research Analyst at D.A. Davidson, suggested a laundry list of slated winners.
"While we expect companies such as Vulcan (VMC) , Martin Marietta (MLM) , Summit (SUM) and Eagle Materials (EXP) will benefit from an Infrastructure Bill long-term," he told Real Money, "other companies such as Arcosa (ACA) , Granite (GVA) , Northwest Pipe (NWPX) and Tutor Perini (TPC) also offer meaningful leverage and have been relative underperformers."
Notably, leading steel stocks like U.S. Steel (X) and Nucor (NUE) are not on his list. Interestingly, steel stocks have cooled since the passage of the bill in November after running quite hot into the fourth quarter, in line with the previous Real Money forecast.
On the additional provisions contained in the bill and knock-on effects of these spending plans, Thielman noted yet more stocks for investors to scrutinize.
"We also seen meaningful increases in demand within utility infrastructure services (electrical transmission & distribution, clean power) with or without an Infrastructure Bill, where companies like Quanta (PWR) , MasTec (MTZ) , Infrastructure & Energy Alternatives (IEA) and Primoris (PRIM) offer solid leverage," he commented.
Capitalizing on Clean Energy Push
In terms of the bill that is still yet to pass, the clean energy and power aspect that Thielman notes is only amplified, as it appears to be a primary focus for the Biden administration.
"Together with the bipartisan infrastructure law, [BBB] makes the most significant investment in our fight against the climate crisis ever by creating jobs that build a clean energy future for our children and grandchildren," President Biden said in remarks upon its passage in the House last month.
Goldman Sachs Chief Political Economist Alec Phillips advised clients that not only the size of the investment, but the length of provisions make this the best area for investors to target judging by the latest revised framework.
"The biggest winner in the framework is clean energy, which appears to get a similar amount of tax benefits and spending as it would have in the House-proposed legislation, despite the framework's much smaller overall cost," he wrote in a recent note. "Notably, most of the clean energy provisions appear to last for 10 years in the framework, while nearly every other proposal would last for a shorter period than previously proposed."
Specific cutouts of the bill provide consumer rebates and credits for energy efficiency, solar roof installations, and electric vehicles.
Certainly, major solar names like First Solar (FSLR) , NextEra Energy (NEE) , and Ormat Technologies (ORA) would be in line for a significant boost upon the bill's passage. Indeed, there has already been palpable excitement about the possibility, with the NASDAQ Clean Edge Green Energy index (CELS) jumping about 20% so far in the fourth quarter.
The provisions for electric vehicles become slightly more complicated, however. The carve-outs in both bills for EVs, including a $12,500 incentive for new vehicle purchases, are predicated upon automakers utilizing union labor.
For Ford (F) , General Motors (GM) , and other major automakers relying upon union labor and leading a significant push into EVs, this is great news. For Tesla (TSLA) , which has expressly eschewed union labor and capitalized on regulatory credits for quite some time, this news is less welcome. Perhaps it is unsurprising then, that the company's outspoken CEO (or Technoking) is less than enthusiastic about the bill.
"It might be better if the bill doesn't pass," Elon Musk told the audience at the Wall Street Journal's CEO Summit. "The federal budget deficit is insane."
Musk added that he believes all subsidies to the industry should be ended.
In my estimation, these comments are entirely self-interested. Tesla rose to prominence over the past decade on the back of Obama-era tax credits and loan guarantees and has since padded its balance sheet by selling regulatory credits. A screed against subsidies certainly smells of a move to essentially pull up the ladder behind him. Further, there is likely a sour taste in his mouth regarding the pro-union provisions. Of course, one could hardly expect anything different from any CEO in his position.
That said, his commentary is not likely to impact the course of the bill. Instead, it is another indication that investors must be wary of specific provisions in these types of bills before going full bore into the sector's selected for investment.
Per the analyst and expert suggestions listed above, the shopping list seems full enough as it is.