A $1.2 trillion infrastructure package is inching closer to the finish line now that the Senate has voted to begin debating the measure.
Analysts expect the Senate to pass a bill with bipartisan support next week. The House may then take up the measure.
The bill includes $550 billion in new spending, on top of existing programs. Highlights include $73 billion for clean-energy transmission, $110 billion for roads and bridges, and $7.5 billion for electric-vehicle charging stations. Money would also be doled out for airports, water projects, broadband internet, and initiatives to combat climate-change.
Passage of a bill still faces steep political hurdles.
While Senate Minority Leader Mitch McConnell (R-Kentucky) has indicated his support, the bill could be held up by Democract demands in the House to pass a $3.5 trillion budget reconciliation bill first. That won’t be easy, especially if Democrats hope to enlist Republican Senators for $1.2 trillion in infrastructure, conditioned on passing a reconciliation bill first.
Still, if a bill does keep moving forward, Wall Street analysts are likely to raise revenue estimates for 2022 and beyond, anticipating a steady trickle of money from federal, state, and local governments as projects win approval.
So how to play it? Four companies that stand to benefit are Jacobs Engineering Group(ticker: J),Hubbell(HUBB),Insteel Industries(IIIN), and Union Pacific(UNP), according to Andrew Little, research analyst at exchange-traded-fund sponsor Global X.
Jacobs is a construction company and the lead engineer on several major projects now underway, including a $1.2 billion reconstruction of the I-270 Corridor in Denver, he notes. Jacobs is also involved in renewable-energy projects and builds data centers.
Hubbell manufactures electrical equipment for industrial clients, including products to improve building energy efficiency and power transmission, helping create “smart grids.”
Insteel manufactures steel wiring used in construction projects and water utilities, including reinforcement of piping and irrigation projects.
Union Pacific runs one of the largest freight-rail networks in the U.S., operating in 23 western states, and would benefit from increased volume of raw materials and industrial goods.
Investors may be paying a steep premium for these stocks, though.
Jacobs is up 26% this year and trades at 19 times next-12-month earnings, a 19% premium to its five-year average price/earnings multiple. If there’s upside, however, it could be in infrastructure—Jacobs’ “people and places” business generates $7 billion in annual revenue through modernizing public and private projects, partly to meet higher environmental standards, the company said on a recent earnings call.
Hubbell is up 27% this year and goes for 21 times earnings, against a five-year P/E average of 18. The company would benefit from increased spending on renewable-energy infrastructure, including solar and wind components.
Insteel has gained 75% this year, though it still trades at a modest 13 times earnings. The company is facing supply constraints and logistics issues, though an infrastructure bill would be a benefit, Insteel recently told analysts.
Union Pacific stock is only up 5% this year and trades at 20 times earnings, above its five year P/E average of 19.
Freight volume has been depressed due to supply-chain disruptions, a shortage of semiconductors, and backlogs of goods waiting to be unloaded at U.S. ports.
But the railroad is expecting raw materials volume to remain robust as the economy gains momentum. And Union hiked its annual dividend in May by 10% to $1.07 a share, giving it a 2% annualized yield.
Other infrastructure favorites include aggregates companies Vulcan Materials(VMC) and Martin Marietta Materials(MLM), and industrial-machinery giants Deere(DE) and Caterpillar(CAT). In broadband, cell-tower companies such as American Tower REIT(AMT),SBA Communications(SBAC), and Crown Castle International(CCI) could benefit.
Investors can also gain exposure to the theme through an ETF. Top performers in clean tech this year include First Trust Nasdaq Clean Edge Smart GRID Infrastructure Index(GRID),Invesco MSCI Sustainable Future(ERTH), and First Trust Global Wind Energy(FAN).
AsBarron’s has noted, electric-vehicle-charger component providers, including Amphenol (APH),TE Connectivity (TEL), and Sensata Technologies Holding (ST), could also be winners.
The iShares U.S. Infrastructure ETF (IFRA) includes a big slug of utilities at 44% of its asset base. The ETF has done well this year, gaining 20% against a 17% return for the S&P 500.
There could be more gains ahead if the infrastructure train finally leaves Union Station in Washington.