Market Sectors That Benefit From American Jobs Plan

Infrastructure spending is generally popular with all voters. Hatred of potholes, traffic gridlock, dingy train stations, rickety bridges, and antiquated airports seems to be one of the few things that Republicans, Democrats, and Independents can agree on.

Enter President Biden's $2.25 trillion American Jobs Plan (AJP) infrastructure proposal, which is potentially the biggest public works program in decades. In the President's own words, it would be "unlike anything we have seen or done since we built the Interstate Highway System and The Space Race."

Large portions of the proposed bill still likely face significant hurdles in Congress. For example, sections that address improvements to the home healthcare system and calls to create jobs at "prevailing wages in safe and healthy workspaces" have little to do with "infrastructure" as defined previously.

The AJP proposes raising the federal corporate income tax rate from 21% to 28%. The Tax Cuts and Jobs Act of 2017 (TCJA) reduced this rate from 35%, and, unlike some TCJA provisions, that cut was meant to be permanent. The Biden proposal also includes provisions to increase the global minimum tax rate on U.S. corporations from 13% to 21%, place a minimum tax on corporate income and remove incentives to register corporate headquarters or intellectual property overseas.

The healthcare “infrastructure” spending along with corporate tax increases will likely be two of the biggest legislative challenges – outside of the overall cost of the bill on top of the recent $1.9 trillion COVID-19 relief bill.

What’s the concept behind the bill? And, more importantly for investors, what stock market sectors stand to benefit from the programs the bill could create?

As the world’s population grows, virtually every country faces pressure to upgrade existing infrastructure or launch new developments. This trend, paired with the Biden administration’s agenda, will offer an opportunity for investors seeking to diversify their equity portfolios and generate income that tends to react positively to inflationary threats.

The large size and long duration of these intended infrastructure projects tend to be capital-intensive and perfect for the creation of multi-year jobs both public and private. Most investment in our economy comes from the private sector, yet certain things – roads, bridges, train stations, water treatment, airports, and shared infrastructure – tends to be government-funded. And our new administration has made it clear that on their agenda this is a major priority.

Investing in any form of infrastructure still leaves one susceptible to risks related to regulations, political activity, and even natural disasters beyond standard return on investment (ROI) considerations. Yet, just as the adage of “Don’t fight the Fed” exists when the government pours money into something, you know where to probably look for opportunities, too. Look at the cyber- and internet-security industry that did not exist 25 years ago before the federal government invested billions in the internet and broadband online access for more segments of the general population.

Just as the AJP bill itself has many facets; investors will have many companies in multiple industries to choose from that stand to benefit from much-needed infrastructure work. Paved roads and bridges are covered with asphalt and cement with plenty of steel rebars running through them. Along with these, resources such as crushed stone, iron, sand, and gravel will be abundantly needed. Companies that provide these raw and finished materials should do well.

Additionally, building materials companies that specialize in the materials used in large construction and infrastructure projects will benefit handsomely. Makers of large trucks, trailers, and such heavy equipment as asphalt pavers, compactors, excavators, pipelayers, backhoes, and just about everything else for a major infrastructure project are eying multi-year paydays.

Also, chemical products are used in flame retardants, wastewater treatment, and assorted environmental applications. Mining of copper, silver, gold, and other earth metals are needed as resources for the builders of the machines and equipment to construct and operate the new plants and transportation facilities.

AJP has traditional items within transportation infrastructure, including roads, bridges, the rail network, and airports. Yet the largest and most novel share in the bill is $174 billion to develop a national electric vehicle charging network and electrify the federal vehicle fleet. This is not only an opportunity for investment in electric vehicles (EVs) but also in the industries that provide batteries, maintain the smart power grid and dispose of “non-green” items.

And though the Army Corp of Engineers (who will figure highly in the work of the plan’s projects) are exemplary skilled professionals, at the state level private civil, electric, mechanical, landscape, and other engineers will be retained to plan, design, and, in some cases, build the new infrastructure.

The infrastructure plan, in short, not only stands to change the face of our nation but the face of your portfolio and returns as well – if you recognize the opportunity and plan ahead before you invest.

by Walid Petiri

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