Power Up Your Portfolio With Clean Energy And Infrastructure

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While US GDP growth slowed to a 2.0% annualized pace in the third quarter, investors are struggling to assess the economy’s direction and prospects for 2022. However, the strong secular growth of clean energy both in the US and abroad, combined with the recent passage of a landmark bipartisan infrastructure bill by the US government, provides areas to invest in it regardless of the health of the economy as a whole. who should be rich.

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The Infrastructure Investment and Jobs Act passed Congress on November 5 and was signed into law by President Biden on November 15. The total outlay associated with the plan is $1.2T spread over 10 years, with over $550B in new federal investments. It is worth noting that this includes:

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$284B for transportation:

  • $110B for roads and bridges, major infrastructure, including $40B for repair/replacement with an emphasis on climate impacts.
  • $66B for passenger/freight rail.
  • $42B ($25B) for airports, ports and waterways.
  • $38B for public transportation.
  • $15B for EV infrastructure (50%) and transit (50%).
  • $11B for transportation security efforts.

$266B for core infrastructure:

  • $65B for broadband infrastructure.
  • $65B to modernize the electricity grid, including the expansion of renewable energy.
  • $55B to upgrade water infrastructure.
  • $48B for flexibility including cyber security, flood/fire mitigation, etc.
  • $21B for environmental remediation/legacy pollution.
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There are many companies that will benefit from this spend and offer attractive opportunities to investors over the next few years. These possibilities are reflected in the Datagraph™ of the US Infrastructure Development (PAVE) ETF below, which is clearly in an uptrend and reached new highs in late October. For investors looking to benefit from the Infrastructure Act, this ETF 101 represents a diverse list of holdings.

Several building-related companies, including engineering, consulting and construction firms Jacobs Engineering, Quanta Services and Accom, should benefit from the increase in spending. Content companies should see increasing demand for their products; I love Sika, Martin Marietta Materials, and the steelmaker Cleveland Cliffs. Also, I support companies that provide the equipment and equipment that will be needed to perform the tasks outlined in the Infrastructure Act, such as United Rental, Eaton and Ingersoll Rand. Other industries set to profit include telecommunications infrastructure, water/electricity infrastructure, security software and environmental consultancy.

Other names that may benefit from infrastructure spending include:

Let’s take a look at some such companies:

SIKA (SIKA SW; $55B market cap) is the largest global provider of chemicals for construction, such as cement mixes, mortars, adhesives, thermoplastics, sealants, water/fire-proofing, roofing, flooring, and others. Many of its products have a sustainability component or can reduce customers’ carbon footprint because they last longer and are made more efficiently. One-quarter of revenue is from North America, but a recent acquisition that adds 33% to its top line also increases its exposure to the region.

Jacobs Engineering (J; $18B market cap) provides technical and construction services primarily in the US (75% of revenue). The US government accounts for 33% of revenue. It is exposed to several key areas of the infrastructure bill, including transportation, water management, and environmental health/safety, and is increasing technology-driven solution offerings through recent acquisitions. The company’s FY21 year-end backlog grew 12% y/y to $26.6B. It expects approximately $10/share in adjusted earnings by 2025, up from $6.29/share in FY21.

Quanta Services (PWR; $17B market cap) generates 70% of revenue from the electrical infrastructure segment, primarily in the US, providing upgrade and maintenance services and repair services, including emergency restoration for weather-damaged electrical power . It forms smart grids (grid modernisation) and is involved in the construction of substation and transmission infrastructure to interconnect renewable energy sources such as wind, solar and hydro. Its backlog as of Q3 2021 was $9.8B, up 21% y/y.

Tetra Tech (TTEK; $10B market cap) provides consulting and engineering services, including environmental restoration/remediation, disaster response, water treatment, renewable energy infrastructure, green building design and climate change analysis. US federal, state, and local governments account for about half of the revenue. Q4 FY21 (September) Backlog grew 7% to $3.5B. The company has seen sales growth accelerate to 18% y/y for three quarters in Q4, the fastest growth in five years.

The infrastructure bill also accelerates the transition from fossil fuels to clean energy, with a focus on modernizing the US electrical grid and expanding renewable energy power plants. Like infrastructure, the clean energy sector is performing strongly, which is reflected in the datagraph below of the First Trust Clean Green Energy (QLCN) ETF, which has 60 holdings.

The Biden administration is pushing to fight climate change through increased use of clean energy. At a recent United Nations climate conference, President Biden set a goal of cutting US greenhouse gas emissions by 50-52% by 2030 from 2005 levels, and achieving a 100% carbon-free power sector by 2035. The goal is for the nation to have net zero carbon production no later than 2050.

With that background, solar is the fastest growing renewable energy segment. It currently accounts for 4% of total electricity, but is growing at 40% annually and is only 80 times larger than it was 10 years ago. The goal is to have solar generation of 30% of the electricity by 2030. To put this in perspective, in 2020, the US added 20 GW of solar power generation, but will need to add more than 80GW annually by the end of the decade. On speed for this massive transition. Because of this, solar now accounts for 56% of all new generation capacity. In terms of stocks, I favor large solar developers like NextEra Energy and profitable solar product makers like Enphase Energy.

Wind will be another major factor in the transition from fossil fuels to renewable energy. US wind power generation is actually more than twice that of US solar power generation, which accounts for 8% of total US electricity generation and 43% of overall renewable energy generation. Wind power generation is an astonishing 60 times higher than 2000 levels and is expected to increase further. The Biden administration is targeting 30GW from offshore wind by 2030. To reach the previously mentioned net zero carbon target, the country would need to add ~300GW of onshore wind by 2030.

In addition to transforming power generation, America and the world are moving from internal combustion engines to electric vehicles (EVs). EVs still represent only 2% of total vehicle sales, but the Biden administration has set a target of 50% of new cars being EVs by 2030. To help achieve this, the number of EV charging stations will need to grow 30-fold or more by 2030. All of this should benefit EV manufacturers such as Tesla (TSLA), Rivian Auto (RIVN), and Lucid Group (LCID), as well as lithium battery manufacturers and lithium suppliers such as Livent (LTHM).

Below I list some names of interest in the clean energy sector (including emerging sectors like hydrogen/fuel cells and companies like Plug Power). These are good names to look for – every investor should include this dynamic sector in their portfolio.

In particular, I like:

Enphase Energy (ENPH; $33B market cap) provides microinverters and energy management systems for the residential and commercial markets. Driven by a growing market (solar installation up ~20% over the past two years) and new product launches (IQ8 microinverters, storage systems, portable energy, EV charging, fuel cells), the company expects its serviceable addressable market to be $20.5. will increase to B. From ~$8B in 2022 by 2025. One of the top performing stocks in the market over the last five years, it has grown annual sales and EPS by 58% and 203% respectively in the last three years.

Livent (LTHM; $5B market cap) is the third largest North American-based lithium miner with low-cost production in Argentina. It supplies lithium compounds that were historically used in various industries but are now mainly used in EV batteries. It is doubling its lithium carbonate capacity by 2023 and increasing its high density lithium hydroxide capacity by 20% by 2022 to meet growing EV demand. Forward Catalyst may renew supply contracts including Telsa in 2022. All-time high lithium prices are leading to a sharp acceleration in expected growth ahead of additional capacity.

Kenley Scott, director, global sector strategist, William O’Neill + Company, an associate of O’Neill Global Advisors, contributed significantly to the data compilation, analysis and writing for this article.


No part of the authors’ compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed herein. O’Neill Global Advisors, its affiliates, and/or their respective officers, directors, or employees may have interest, or long or short positions, and may at any time buy or sell as principal or agent of the securities specified herein. can. ,

The author of this article owns shares in the First Trust Clean Green Energy (QCLN) ETF and manages a product that includes Cleveland Cliffs (CLF), United Rentals (URI), Ingersoll Rand (IR), Tetra Tech (TTEK) owns shares. Enphase (ENPH), Live (LTHM), and Plug Power (PLUG).


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