Written by Norman Isaac Mwambazi

LIST: 10 stocks and sectors that will benefit from the infrastructure bill

When Joe Biden was campaigning to became the 46th President of the United States of America, he promised to spend …

When Joe Biden was campaigning to became the 46th President of the United States of America, he promised to spend a huge amount of public funds to cushion businesses and households against the effects of the coronavirus pandemic in an effort to revive the economy and another huge portion on infrastructure development.

Soon as Biden was inaugurated, signed into law a stimulus package worth $1.9 trillion that was passed by the US Congress in March 2021, and millions of Americans have since received $1,400 stimulus checks directly deposited into their bank accounts.

Yesterday, Tuesday, August 10, 2021, the U.S. Senate passed a roughly $1 trillion infrastructure package with broad support from both Democrats and Republicans, putting it on track to possibly be passed by the House and be signed into law by President Joe Biden.  

A brief breakdown of the passed infrastructure bill shows that $550 billion has been provided to be spent on water projects, safety efforts, and the electrical grid and safety efforts. Roads, bridges, and other projects in that sector will take $110 billion, while, $66 billion will be spent on rail, $65 billion will be pumped into upscaling broadband internet across the U.S., and a separate $55 billion will be spent on water systems.

Some analysts say that much of financial markets have already included the bill’s positive impact on the economy in their pricing since plans of its passing were revealed, but it is possible that some stocks could still enjoy the spending this bill is going to provide for several sectors, especially as concerns continue to grow over the spread of the delta variant of the coronavirus. If the delta variant is not tackled and dealt with effectively, it could halt the recovery of global economies from the effects of the pandemic.

Speaking of the bill, Brian Price, Head of Investment Management at Commonwealth Financial Network said that the passage of the infrastructure bill is nice but it will not cause a big stir in the stock market at this point, adding that a lot of the enthusiasm for the bill has been priced into the markets over the past few weeks.

Price said that currently, investors are focused on other factors like the likelihood of the Federal Reserve Bank to taper its monthly purchases of $120 billion in Treasury Bonds and mortgage-backed securities. These measures, together with the decision to keep interest rates at near-zero levels helped to stabilize the market during the height of the pandemic between March and April last year.

After passing the bill, indexes rose to near all-time closing highs. According to The Wall Street Journal, the Dow Jones Industrial Average (DJIA) and the benchmark S&P 500 all rose in extended trading yesterday after the bill was passed by the Senate with a 69-to-30 vote.

According to market data from FactSet, the Global X U.S. Infrastructure Development ETF PAVE, an Exchange-Traded Fund (ETF) that offers exposure to stocks that would benefit from an infrastructure bill, rose 2.2% yesterday. The data also shows that PAVE has grown 4.7% in the past 30 days, and has gained 28% year-to-date. This means that PAVE has outperformed the Dow Jones Industrial Average and the S&P 500 which have risen 15% year-to-date.

The EFT holds 100 small-cap and large-cap company stocks that generate 50% of their revenue from infrastructure construction, equipment supply, materials, and related services in the U.S.

Pave’s assets under management are worth $4.0 billion, and its top three holdings are steel and related products producer Nucor Corporation (ticker: NUE), industrial manufacturing company Trane Technologies PLC (ticker: TT), and power management company Eaton Corporation PLC (ticker: ETN).

Another ETF that provides exposure to infrastructure stocks is the iShares U.S. Infrastructure ETF (IFRA). This also grew 1.3% on Tuesday and it has grown nearly 20.64% year-to-date. This ETF holds 20 electric utilities and four water utilities, something that makes it not always regarded as a pure-play infrastructure fund.

iShares IFRA is currently managing assets worth $644.8 million, with the top three being solar energy company Sunnova Energy International Inc. (ticker: NOVA), water utility company Middlesex Water Company (ticker: MSEX), an integrated energy company NRG Energy, Inc. (ticker: NRG).

The Industrial Select Sector SPDR ETF (XLI) also gained 1% on Tuesday and is up nearly 18% year-to-date. This ETF tracks the S&P 500’s industrial sector.

Philip van Doorn, an Investment Analyst at Dow Jones & Co’s Market Watch, compiled a list of 20 companies, all PAVE’s members, that might have the most upside potential for investors due to this infrastructure bill. 10 of them are listed here:

Company namesTickerIndustryYTD % returnImplied 12-month upside potential
Team Inc.TISIMiscellaneous Commercial Services-56.8341%
Primoris Services Corp.PRIMEngineering & Construction-3.6%27%
Columbus McKinnon Corp.CMCOTrucks/Construction/Farm Machinery17.6%21%
Builders FirstSource Inc.BLDRBuilding products19.6%17%
Advanced Drainage Systems Inc.WMSMiscellaneous Manufacturing40%16%
Altra Industrial Motion Corp.AIMCIndustrial Machinery10.5%16%
Dycom IndustriesDYEngineering & Construction-5.7%16%
Cleveland-Cliffs Inc.CLFSteel78.7%14%
Rexnord Corp.RXNIndustrial Machinery51%14%
Herc Holdings Inc.HRIFinance/Rental/Leasing90%14%
Source: FactSet

It is worth noting that when FactSet polled analysts towards the end of March 2021, about those companies listed above, none of them gave a “Sell” or equivalent recommendation, and four companies were given a 100% “buy” or equivalent ratings.

This bill, once passed, will be the biggest investment in roads, bridges and tunnels, water systems, and other structures in a generation, and Edward Moya, an analyst at foreign exchange company Oanda Corporation said that it will be essential in driving the cyclical trade.

However, Senior U.S. Economist at research consultancy firm Capital Economics Michael Pearce says that this infrastructure spending will take a few years to scale up in the markets, as it will be spread over the rest of the decade.

Early this year, Bank of America analysts noted that big spending on infrastructure projects like roads, bridges, renewable energy systems, and Electric Vehicle (EV) charging stations across the country, among other infrastructure spending included in this bill will boost the country’s Gross Domestic Product (GDP) by 1.9% – 8.6%. According to Bank of America, each percentage of GDP growth in the U.S. has historically translated to a 3% – 4% bump in overall S&P 500 earnings.