I was really starting to have my doubts. But somehow, they did it.
I’m referring, of course, to the Democratic Party in Washington, D.C.
They’ve been talking about an infrastructure spending package since before last year’s presidential election. Somehow, they got the Republicans in the Senate to agree to one.
But then the strategy unraveled. A small group of Democrats in the House of Representatives insisted that it be passed at the same time as a social spending bill.
On Friday, that small group caved. They agreed to pass a $1.2 trillion infrastructure package, including $550 billion of new federal investments. It’s on its way to President Biden’s desk.
It’s about time.
I started adding potential beneficiaries from federal infrastructure spending to my special research service, Profit Switch, back in the spring. Share price performance tracked the ups and downs of the political negotiations closely. Finally, this week they’re taking off.
So, what’s in this bill?
How can you position yourself to profit from it?
Let’s have a look under the hood…
Money Only the Government Can Spend
Let’s start with a basic point that a lot of people tend to overlook.
Our society and economy depend on good infrastructure. Without it, you can’t run profitable businesses or enjoy a decent life.
But the private sector doesn’t invest in things like highway systems, bridges, ports and other essential infrastructure.
That’s because they’re what we economists call “public goods.” Preventing people from using them without paying is more trouble than it’s worth.
That’s why the government always pays for big infrastructure.
For the last few decades, that’s been a problem. Especially on the Republican side of the aisle, politicians have been reluctant to spend money. They prefer to cut taxes.
It’s been over 50 years since the United States last spent significant money on infrastructure.
As a result, our nation’s infrastructure has deteriorated to the point where the American Society of Civil Engineers assigned it a “D” grade every year since 1998. They estimate it will take $2.6 trillion to bring us up to an “A” grade.
This chart shows the status of various essential infrastructure compared to their expected service life:
(Click here to view larger image.)
So even this new bill doesn’t provide enough to fix all our problems. But it does something … which is better than nothing.
What’s in It
Here’s what that something entails:
$110 billion for roads, bridges and other major infrastructure projects. It’s about time. Twenty percent of the country’s highways and major roads are in poor condition, as are a whopping 45,000 bridges.
$66 billion to improve passenger and freight rail systems. That’s the largest investment in rail since the creation of Amtrak 50 years ago. We won’t exactly get to European or Asian levels of train service, but it’s something.
$65 billion to improve broadband infrastructure. That includes a critically needed plan to extend broadband to rural areas and low-income neighborhoods, boost competition and enforce price transparency. That’s something I’ve been calling for as long as I’ve been writing financial newsletters.
$65 billion to rebuild the national electrical grid. As events in California and Texas prove, our current patchwork of semi-coordinated electrical systems just won’t cut it anymore.
$55 billion to upgrade water infrastructure, especially replacing lead pipes.
$50 billion to protect water systems from drought, floods and cyberattacks.
$39 billion to modernize public transit systems, with an emphasis on urban light rail and buses.
$25 billion to improve airports.
$21 billion to clean up chemical dump sites, abandoned mines and orphaned gas wells.
$17 billion to upgrade port infrastructure. Not a moment too soon!
$11 billion to improve transportation safety, especially in urban areas.
$7.5 billion to subsidize the rollout of zero- and low-emission buses and ferries, including thousands of electric school buses. (This will provide a nice tailwind to a stock we already own in The Bauman Letter model portfolio. Click here to learn more.)
Another $7.5 billion to build a national network of 30,000 electric vehicle chargers.
What’s in It for You
As an investor, you can benefit by investing in companies set to be on the receiving end of all this spending.
But don’t do what a lot of investors are doing this week.
They’re rushing out to buy shares of individual companies in the most exciting sectors, like electric vehicles (EVs), charging stations, battery storage … etc.
One of the problems with waiting two generations to spend money on infrastructure is that most investors have no idea how government procurement systems work.
Neither do the “new technology” companies, like EV charging networks, that will soon be competing to get government contracts.
It takes time, and you have to know the ropes. So, it’s best to let the dust settle and see how things shape up in the various infrastructure sectors before we get to company level.
A better short-term strategy is to put some money into the following exchange-traded funds.
Some target companies are directly involved in infrastructure buildouts. Others target the material supply side.
But the key thing about the exchange-traded fund route is that their fund managers can pick and choose the companies jostling for contracts under the bill … so you don’t have to:
Global X U.S. Infrastructure Development ETF (BATS: PAVE).
Invesco Dynamic Building & Construction ETF (NYSE: PKB).
VanEck Vectors Steel ETF (NYSE: SLX).
Materials Select Sector SPDR ETF (NYSE: XLB).
Global X Hydrogen ETF (Nasdaq: HYDR).
Remember, this is a 10-year infrastructure budget. This isn’t going to all happen at once. Some of the companies that will benefit most from this bill haven’t been founded yet.
So … be patient, be strategic … and as always, smart and tough.
Editor, The Bauman Letter