Americans have been waiting for Infrastructure Week for... many, many weeks now.
The idea of a bipartisan bill which would fund an overhaul of America’s bridges, railroads, and internet backbone first started to gain traction during the early days of the Trump administration — but due to political bickering, it never materialized.
Years have passed since then, and the new occupant of the White House has had better luck negotiating an infrastructure deal than his predecessor.
On June 25, President Biden met with a bipartisan group of 21 senators, came outside to address reporters, and said four words which have tremendous power over equity markets:
We have a deal.
The Dow Jones Industrial Average rocketed upward that day in response.
So what’s in the $1.2 billion infrastructure deal? How will it affect America’s economy in the years ahead? And which stocks will benefit from the massive government contracts which it’s likely to generate?
Let’s start with the basics...
Examining the $1.2 Trillion Infrastructure Deal
In his announcement, Biden emphasized that the deal would focus on physical infrastructure — and that it wouldn’t necessarily contain all the antipoverty measures Democrats had pushed for. “I’ll stick with what we’ve proposed... I didn’t get all that I wanted,” he told reporters.
Nonetheless, the proposed bill will still unleash a tidal wave of federal spending on transportation, broadband, electricity, and water improvement projects. It will spend a total of $973 billion over five years and $1.2 trillion if continued over eight years — while only raising federal spending by $579 billion above previously-expected levels.
Chart by author, based on White House fact sheet data
It would fund such a diverse array of initiatives that we have to put them in a bulleted list to adequately cover them. The list below isn’t even comprehensive, but includes all of the largest provisions of the bill:
- $109 billion will be invested in roads and bridges
- $66 billion will go to passenger and freight rail
- $49 billion will go to public transit
- $15 billion will be set aside for electric vehicle infrastructure and transit
- $73 billion will be invested in power grid improvements
- $65 billion will go to upgrading the internet backbone and improving broadband access
- $25 billion will be invested in airports
- $16 billion will be spent to improve ports and waterways
- $55 billion will go to water improvement projects
- $21 billion will be invested in environmental remediation efforts
- $47 billion will go to resiliency projects (hardening infrastructure against future environmental change)
As you can see, the bill will have wide-ranging stimulus effects across the economy, juicing investment in everything from EVs to coastal hurricane protection barriers to highway overpasses.
But some industries will benefit more than others — and some stocks are more likely than others to see disproportionate gains from the passage of the bill...
Vulcan Materials Company (NYSE: VMC)
Founded in 1909 and based in Birmingham, Alabama, Vulcan Materials Company is America’s largest producer of construction materials. It primarily focuses on aggregates like gravel, crushed stone, and sand.
CEO J. Thomas Hill neatly summarized how Vulcan will benefit from the infrastructure bill during the company’s first quarter earnings call, telling investors, “In any definition of infrastructure, if it’s new construction, aggregates is going to be the foundation.”
That same earnings call revealed an exciting growth trajectory for the company — even before the infrastructure bill. Vulcan expects to earn between $4.85 and $5.30 per share from continuing operations this year, representing 15% growth over 2020.
Vulcan is also profitable on an earnings basis and pays a 0.83% dividend at a comfortably low payout ratio of 27%.
It’s no wonder shares have already been on a tear in the last year. And they should only accelerate once Vulcan starts to receive federal contracts as a result of the infrastructure bill.
United Rentals (NYSE: URI)
Founded in 1997 and based in Stamford, Connecticut, United Rentals is the world’s largest equipment rental company. It owns the largest rental fleet in the world with about 660,000 units, and controls about 13% of the North American market as of 2019.
In May, United Rentals completed an acquisition which positions it nicely to receive federal contracts. It bought General Finance to expand its portfolio into mobile storage, an amenity which is present at almost every construction site in America.
The company is very profitable, has a considerably lower price-to-earnings (P/E) ratio than many of its peers, and saw its free cash flow surpass its net income last year.
It’s no wonder shares have performed as well as they have over the past 12 months.
Nucor (NYSE: NUE)
Founded in 1897 and based in Charlotte, North Carolina, Nucor is America’s largest steel producer, the largest scrap recycler in North America, and the largest electric arc furnace steel producer in the world.
Construction accounts for about half of global steel demand — so it’s easy to see how America’s largest steel producer would benefit from a slew of new federal construction projects. The firm posted record results in its first quarter — and expects the second quarter to be even better.
Nucor is a Dividend Aristocrat and currently funds that dividend at a payout ratio of just 30%.
Shares have appreciated considerably over the last year amid an historic rally in steel prices — but based on its shockingly low P/E ratio of 17.8, they still have plenty of room to run.
The Long-Term Effects of the Infrastructure Bill
These three stocks should be some of the biggest beneficiaries of the initial spending spree funded by the new bill.
But its most transformative economic impacts will be felt years or decades later — as America’s newly constructed bridges, airports, broadband backbones, and EV charger networks change the way American companies make money.
Who will be the biggest beneficiaries of that boom? It’s too early to say. But we hope that this report has helped you claim a piece of the $1.2 trillion which Americans have been waiting for for too many years.