This story is available exclusively to Insider subscribers.[Become an Insider](/subscription?r=readmode) and start reading now.
[Become an Insider] and start reading now.
– The bipartisan infrastructure bill is becoming law, but investors haven’t yet responded in pronounced fashion.
– Bank of America noted that sentiment has weakened for clean energy and industrials stocks.
– The firm named 42 stocks to buy that investors are currently overlooking.
Bank of America has some simple advice for investors who are considering adding exposure to clean energy and industrials stocks after the passage of the bipartisan infrastructure bill : don’t overthink it.
After months of back-and-forth political wrangling, earlier this month Congress passed the $1 trillion Infrastructure Investment and Jobs Act (IIJA).A slightly larger “human infrastructure” bill supported by President Joe Biden and most Democrats may also become law soon, according to BofA senior vice president and policy expert Jim Carlisle.
Roughly a trillion dollars in new spending — and potentially much more — on investments in clean energy, transportation, and broadband is an obvious boon to the stocks tied to those industries.Those names saw gains ahead of the infrastructure bill crossing the finish line, but they still have plenty of room to run, according to Bank of America.
“Is the legislation already priced in to markets? We don’t think so,” wrote BofA investment strategist Jared Woodard and four colleagues in a November 9 note.”Flows, institutional positioning, and returns suggest continued investor uncertainty around the impact of the legislative agenda.”
Initial hype for infrastructure stocks wears off, leaving opportunity
[traded flat since May] .
Clean energy stocks also enjoyed a robust rally to start the year driven by optimism about an infrastructure deal, but they too have pulled back precipitously.Though Biden plans to sign the long-awaited bill into law Monday, the iShares Global Clean Energy ETF ( ICLN ), Bank of America’s proxy for the industry, is still 25% off its January highs — even after a 17% rally since mid-October.
“Returns in the industries most likely to benefit from new legislation also show how much expectations have retreated,” Woodard wrote.
Though sentiment about industrials and clean energy stocks may have verged on exuberant earlier in the year, Bank of America now spots opportunities in both industries that investors can take advantage of.
The industrials sector should enjoy capital expenditure (capex) growth of 6% to 7% per year in the US, according to Bank of America.The renewed focus on “reshoring,” or bringing manufacturing services and capacity back to the US from overseas, can be seen in the nation’s $50 billion reinvestment in semiconductors this year, the note read.
“This type of capacity growth could drive some ‘catch-up’ in equipment spending relative to software over the next few years,” Woodard wrote.
Meanwhile, key tax credits for clean energy companies and utilities, including a three-year credit for solar investment and a five-year credit for wind production, survived the bill, Woodard noted.That should provide a boost to margins for companies in those respective industries.
Stocks to buy as the infrastructure bill becomes law
Below are six industrials stocks that Bank of America said will benefit from a strong capex recovery in 2022 driven by the US’s recent reinvestment in technology capacity, followed by 36 buy-rated clean-energy stocks in the utilities, alternative energy, charging infrastructure, and liquefied natural gas (LNG) industries.
The firm highlighted four clean energy stocks in particular, while adding notes for the six industrials sector standouts.
Along with each stock pick is its corresponding ticker and market capitalization with commentary for the selected names.
1.Rockwell Automation
Market cap: $38.8B
Sector: Industrials
Commentary: “Management … highlighted the benefits of a strong capex recovery in 2022, in addition to the structural trends of reshoring and industrial software growth.”
4.Eaton Corporation
Market cap: $68.5B
Sector: Industrials
Commentary: “As public policy incentivizes more expansion, other beneficiaries include … industrial software and automation providers like Eaton.”
5.Fortive
Market cap: $28B
Sector: Industrials
Commentary: “As public policy incentivizes more expansion, other beneficiaries include … industrial software and automation providers like … Fortive.”
6.
Vontier
Market cap: $5.7B
Sector: Industrials
Commentary: “As public policy incentivizes more expansion, other beneficiaries include … industrial software and automation providers like … Vontier.”
7.First Solar
Market cap: $11.8B
Sector: Technology
Commentary: “[The] team see[s] the current backdrop as likely boosting margins in the near-term, with First Solar particularly well-positioned.”
8.Exelon
Market cap: $53.2B
Sector: Utilities
Commentary: “Nuclear and wind tax credits can be paired with hydrogen credits, which should benefit Exelon Corp as [it] evolve[s] Hydrogen business models into 2022.”
9.NextEra Energy
Market cap: $169.6B
Sector: Utilities
Commentary: “Nuclear and wind tax credits can be paired with hydrogen credits, which should benefit … NextEra Energy, Inc.as [it] evolve[s] Hydrogen business models into 2022.Utilities like NextEra more exposed to the clean energy space have outperformed peers with less exposure.”
10.
Xcel Energy
Market cap: $33.9B
Sector: Utilities
Commentary: “Xcel Energy, Inc.was recently upgraded as our Utilities team expects the company to be a core potential beneficiary of the pending Federal legislation for renewables repowering, transmission spending, and regulated nuclear.”
[Features]
[Investing]
[Infrastructure]
– [infrastructure bill]
– [infrastructure bill 2021]
– [infrastructure plan]
– [infrastructure investing]
– [infrastructure stocks]
– [infrastructure stocks to buy]
– [bipartisan infrastructure]
– [bipartisan infrastructure bill]
– [Biden infrastructure]
– [Biden infrastructure bill]
– [Biden infrastructure law]
– [Biden infrastructure plan]
– [Bank of America]
– [bank of america investing advice]
– [bank of america investing strategy]
– [bank of america infrastructure]
– [Industrials]
– [industrials sector]
– [industrials stocks]
– [clean energy]
– [clean energy stocks]
– [Infrastructure Investment and Jobs Act].
