By Michael Brush
President Biden’s infrastructure-spending proposal is a veritable grab bag of goodies, supporting everything from basic infrastructure to broadband and home health-care workers.
But for green-energy fans, there was plenty to like.
The proposal offers $621 billion to modernize transportation infrastructure — including changes that favor electric vehicles (EVs), according to the Wall Street Journal. It proposes $213 billion to help make buildings more energy-efficient. Biden also sets an ambitious goal of making the power grid carbon neutral by 2035.
To find some of the best investing angles, I checked with two money managers who have great records. Before we get to stocks, first some high-level impressions of the Biden proposals.
Overview of Biden’s proposals
EVs and energy-efficient buildings are “really important mega trends in sustainable energy that we are paying close attention to,” says Andy Braun, who manages the Pax Large Cap Fund /zigman2/quotes/205819511/realtime PAXLX +0.20% . His fund outperforms its Morningstar large blend category by five percentage points, annualized, over the past three years.
Another key angle for investors is that the Biden spending initiatives would reinforce similar plans in the two major economic centers outside the U.S. — Europe and China. This amplifies the impact, notes Jonathan Waghorn of the Guinness Atkinson Alternative Energy Fund /zigman2/quotes/208260183/realtime GAAEX +1.70% . His fund beats its Morningstar foreign small- and mid-cap value fund category by an impressive 21.8 percentage points, annualized, over the past three years, according to Morningstar. The fund is being converted into an exchange treaded fund (ETF) called SmartETFs Sustainable Energy II /zigman2/quotes/222494847/composite SULR +1.04% .
Putting governments aside, a third force is at work for investors. The greater use of renewable power and reducing the carbon footprint of buildings makes economic sense for companies, says Waghorn. This is important, because investing based on government spending plans alone can be risky.
Now here’s a look at green companies these two money managers say would get a boost if the Biden infrastructure plan gets passed.
Electrification of transportation
The obvious plays here are companies like Tesla /zigman2/quotes/203558040/composite TSLA +4.69% in vehicles and lithium-ion batteries, and ChargePoint Holdings /zigman2/quotes/214140886/composite CHPT -1.23% and Blink Charging /zigman2/quotes/205311237/composite BLNK -3.90% in charging stations. But both Braun and Waghorn instead look beyond these to single out companies that make the building blocks and components supporting this trend.
For example, consider ON Semiconductor /zigman2/quotes/202641012/composite ON +4.18% , a top holding of the Guinness Atkinson Alternative Energy and Waghorn’s SmartETFs Sustainable Energy II. This company would benefit from the Biden plan because its power-management chips convert, control and monitor electricity in EVs, from the charging process to driving. It also makes sensors used in cars.
Next, consider Infineon Technologies /zigman2/quotes/203514023/composite IFNNY +3.17% , which specializes in power semiconductors that regulate electricity in cars. This is a top holding of the SmartETFs Sustainable Energy ETF, and another ETF Waghorn helps manage in this space called SmartETFs Smart Transportation & Technology /zigman2/quotes/215097404/composite MOTO +2.21% . He also likes Samsung SDI, a Korean pure-play on lithium-ion batteries that’s building partnerships with European car manufacturers.
Braun, at the Pax Large Cap Fund, highlights fund holding Aptiv /zigman2/quotes/204162392/composite APTV +3.28% , which offers software, components and electrical power distribution systems used in EVs. He also singles out TE Connectivity /zigman2/quotes/205324491/composite TEL +2.99% , which makes connectors and sensors used in EVs.
Cutting the carbon footprint
“Buildings are a big culprit in greenhouse-gas emissions, a theme we have felt strongly about for years,” says Braun. Biden’s plan to spend hundreds of billions to help make commercial buildings and homes become more energy efficient would boost business at Trane Technologies /zigman2/quotes/202648041/composite TT +2.21% , which offers energy-efficient climate-control systems.