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5 Potential Winners from Biden's Infrastructure Plan

By Neha Chamaria - Jun 5, 2021 at 8:06AM

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The president's negotiations with Republicans could lead to passage of a major infrastructure bill, which would be great news for these stocks.

President Joe Biden's ongoing talks with Republican Sen. Shelley Moore Capito of West Virginia may have just pushed his infrastructure plan closer to passage in Congress. Despite their deep disagreements about such a bill's scope and how to pay for it, politicians from both parties can, in the abstract, agree that there's a dire need to rebuild and upgrade much of America's deteriorating infrastructure.

A bipartisan agreement on an infrastructure bill -- even if it's not as big as the one Biden originally proposed -- could therefore be in the cards, which is why it's a great time for investors to check out these five companies that could profit significantly from that government spending.

Vulcan Materials: The crux of construction

In one sentence, Vulcan Materials (VMC 0.64%) CEO J. Thomas Hill pretty much summed up why his company could be a big beneficiary from infrastructure spending. "[I]n any definition of infrastructure, if it's new construction, aggregates is going to be in the foundation," he said during the company's first-quarter earnings conference call.

Indeed, aggregates like crushed stone, sand, and gravel are indispensable for making the most widely used construction material -- concrete. Vulcan is the nation's largest producer of aggregates, operates across 20 states, and has equal exposure to private (residential and nonresidential) construction and public infrastructure markets, positioning it well to benefit from nearly all kinds of construction activity.

Vulcan is already experiencing strong demand and expects to earn between $4.85 and $5.30 per share from continuing operations this year. That would amount to solid 15% growth over 2020 at the midpoint. Also, the company has a strong balance sheet, has steadily increased its dividend for years -- including a 9% payout hike earlier this year -- and is keen on acquisitions and greenfield projects in new locations. That's a lot to like in one infrastructure stock.

A group of workers in hard hats discussing a site plan at a construction site.

Image source: Getty Images.

United Rentals: Its fortunes are set to rise

Caterpillar (CAT 0.37%) might be the leading construction equipment manufacturer, but it also has significant exposure to volatile sectors like mining and oil and natural gas. That's why a pure-play equipment stock like United Rentals (URI 0.67%) could be a better potential winner from Biden's infrastructure plan.

Unlike Caterpillar, which is a manufacturer, United Rentals is the world's largest heavy-equipment rental company. Here are some key facts about United Rentals.

  • It has a 13% share in the North American equipment rental market.
  • It operates more than 1,100 branches across North America.
  • It has a global fleet of more than 600,000 units.
  • Its revenue grew at a compound annual rate of 14% over the past decade.
  • Its free cash flow exceeded its net income last year.

In May, it acquired giant General Finance to expand its specialty portfolio into mobile storage, a service that's used across all types of construction sites. That deal came right after United Rentals raised its 2021 revenue outlook to a range of $9.05 billion to $9.45 billion, which would mean nearly 8% growth at the midpoint.

Growth in the U.S. equipment rental market consistently outpaced the growth in total domestic construction spending over the past couple of decades, but United Rentals' prospects under Biden can be gauged from these recent words from CEO Matthew Flannery:

Most of the infrastructure categories in the administration's current proposal are directly in our wheelhouse -- things like bridges, airports, and clean energy. And we'll see how the process goes, but almost any infrastructure spending will benefit us in the long term, both directly and indirectly.

AECOM: One client class is key to its growth

Building anything requires planning, designing, and engineering, which is why an infrastructure consulting company like AECOM (ACM 0.37%) should benefit from an uptick in infrastructure spending in the U.S.

The biggest factor favoring AECOM is that the government is already its biggest client. The company derives a little more than 50% of its revenue from the domestic market, and the federal, state, and local governments combined generated nearly 28% of its revenue in 2020. Importantly, AECOM's key end markets in the U.S. are transportation (including transit and rail, ports, roads, and bridges), energy, water, and environment, all of which are major areas of focus for Biden's infrastructure plan.

A recent aggressive restructuring and a renewed focus on higher-margin business could potentially double AECOM's earnings per share and free cash flow by 2024 -- or even sooner, if a major infrastructure bill is passed.

Nucor: The best infrastructure Dividend Aristocrat

Nucor (NUE 0.99%) is a no-brainer infrastructure play given its leadership in the steel industry. Almost 50% of global demand for steel comes from construction, which reflects how vital it is to infrastructure. And as an investment today, Nucor is appealing for several reasons.

First, it is the largest and most diversified manufacturer of steel and steel products in the U.S. Second, it is North America's largest scrap recycler, allowing it to source a key raw material from its own backyard. Third, Nucor's mini steel mills use electric-arc furnaces -- a more flexible, cost-effective method than traditional blast furnaces. Fourth, Nucor has a solid balance sheet and has proved its resilience by increasing its dividend payouts for 48 straight years despite the cyclicality of the steel industry.

After a record first quarter, Nucor expects its second quarter to be even better. Even as I write this, steel prices are hitting record highs. Even if the company doesn't get more help from expanded federal investment in infrastructure, investors should find this Dividend Aristocrat appealing.

ChargePoint Technologies: Electric vehicle adoption will keep speeding up

The president's infrastructure plan includes a proposal to spend $174 billion to support the growth of the electric vehicle (EV) market, including setting up a network of 500,000 EV chargers across the nation by 2030. Currently, there are only around 42,500 charging station locations in the U.S.

Not surprisingly, ChargePoint Technologies (CHPT -2.31%) sees itself benefiting from Biden's plans.

A person charging an electric car.

Image source: Getty Images.

ChargePoint operates one of the world's largest EV charging networks and has a nearly 70% share of the domestic Level 2 charging network market. L2 is the most prevalent type of EV charger in the U.S. To be clear, ChargePoint doesn't directly own charging stations. Instead, it sells hardware to station operators, which then subscribe to its software to manage the stations.

As a result, ChargePoint gets roughly half its revenue up front from hardware sales and the other half from recurring subscriptions. So it's an asset-light business model with considerable recurring, predictable revenue, which are huge competitive advantages to have. ChargePoint shares have been volatile since the company went public in March through a reverse merger with a special purpose acquisition company (SPAC), but could get a bump once the market sees precisely what sort of infrastructure bill emerges from Congress and the White House. Even without that help, ChargePoint expects its revenue to grow tenfold in just the next five years, making it a must-watch infrastructure stock.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Chargepoint Holdings Inc. Stock Quote
Chargepoint Holdings Inc.
$18.20 (-2.31%) $0.43
Caterpillar Inc. Stock Quote
Caterpillar Inc.
$196.68 (0.37%) $0.73
Nucor Corporation Stock Quote
Nucor Corporation
$143.28 (0.99%) $1.41
United Rentals, Inc. Stock Quote
United Rentals, Inc.
$339.80 (0.67%) $2.27
AECOM Stock Quote
$77.17 (0.37%) $0.28
Vulcan Materials Company Stock Quote
Vulcan Materials Company
$178.65 (0.64%) $1.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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