Who here subscribes to my other newsletter, Venture Society? Because if you do — and you should — you might realize this week that I might actually know something. Maybe…
Because earlier this week I told readers that I had heard some rumblings about an infrastructure bill. And what happened Thursday?
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President Joe Biden announced a deal. We got a bill. And I have a short list of stocks to benefit from the infrastructure deal.
At the beginning of April, I wrote about what Biden wanted from his infrastructure plan… Spoiler alert: He didn’t get it.
Source: Financial Times
That’s the initial $2 trillion plan. Obviously, that would have been huge for the electric vehicle (EV) sector.
Well… let’s just say the deal that actually came through… wasn’t that.
Not even close.
First off, the new infrastructure deal was small.
Sure, Biden was probably never going to get the whole $2 trillion deal he proposed. But he agreed to less than 30% of that, and I don’t think that’s nearly enough.
The agreement approved only $579 billion in new spending. Of that, $312 billion will go to transportation — with just $109 billion invested in roads, bridges and other major projects. Another $66 billion will go to passenger and freight rail services, and $49 billion to public transit.
Here’s the rub… $109 billion for roads might, emphasis on might, take care of New York City. So… great. We can fix roads in one city out of the 19,495 cities, villages and towns that exist in the U.S.
Per the Center for Budget and Policy Priorities, improving roads and bridges alone would require an additional $1.1 trillion on top of what states, localities and the federal government have allocated currently.
So $109 billion? Yeah. That doesn’t cut it.
The infrastructure deal also includes $73 billion for power, $65 billion for broadband and $55 billion for water.
Only one out of those three will actually benefit from this deal. The funding helps the broadband side, but only because extending service to rural areas is a relatively inexpensive project compared to the future value it creates.
But the combined $128 billion into power and water is not nearly enough to help our rapidly deteriorating power grid and water infrastructure.
And in a way, I get it. We have to keep the cost down or else we incur even more sovereign debt — which no one likes, especially me. But you get what you pay for.
If you pay for a nothingburger, don’t expect filet mignon. And that’s what we have in this infrastructure deal: a nothingburger.
On the bright side, however, I expect this deal to be the first of many.
Just in case you weren’t aware, with the small amount approved for new spending, I don’t expect EV stocks to benefit from the infrastructure deal as much as we predicted.
After all, only $15 billion will be allocated to electric vehicle infrastructure, electric buses and transit… That’s nothing compared to the $174 billion that was initially proposed.
So if you can’t count on EVs to boom, what can you do?
One easy way to play the stocks to benefit from the infrastructure deal is to look at the Global X U.S. Infrastructure Development ETF (NYSEArca: PAVE). By and large, this ETF consists of basic materials companies that are going to be instrumental in the U.S. rebuild. And although it’s up about $1 or so from recent lows, it’s still off its recent highs.
It’s important for me to note though that commodities are going through a bit of a pullback at the moment, and steel in particular could be affected in the near term.
So if you decide to participate in finding stocks to benefit from the infrastructure deal, like PAVE, I would only deploy a fraction of the capital. Maybe a tenth or an eighth of what you intend to invest… then keep nibbling on down days.
Because like I said, I expect this deal to be the first of many. Hopefully down the road we’ll see more stocks to benefit from the infrastructure deal.
All the best,
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