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Dear <<First Name>>,
The blooming flowers of May coincide with our growing desire to be outdoors, travel, and safely rejoin the world. Attempting to add to that optimism, President Biden, consistent with his campaign agenda, proposes another big domestic initiative. Like his COVID bill, his infrastructure proposal titled the American Jobs Acts strives to create domestic employment in areas that have been neglected for decades. It is a big idea that has multiple implications for various constituencies, including investors in sectors that could benefit. This month I share some sectors to think about as the bill works its way through congress- we will see if and what eventually becomes the law.
Thank you for reading these writings each month and providing your comments, thoughts, and questions, which continue to educate and inform me. I look forward to your continuing thoughts.
Walid L. Petiri
Chief Strategist
Financial Management Strategies, LLC
1330 Smith Avenue. Suite 7
Baltimore, MD 21209
(p) 410-779-1276
(f) 410-779-1302
Infrastructure spending is generally popular with all voters. Hatred of potholes, traffic gridlock, dingy train stations, rickety bridges, and antiquated airports seems to be one of the few things that Republicans, Democrats, and Independents can agree on.
Enter President Biden's $2.25 trillion American Jobs Plan (AJP) infrastructure proposal, which is potentially the biggest public works program in decades. In the President's own words, it would be "unlike anything we have seen or done since we built the Interstate Highway System and The Space Race."
Large portions of the proposed bill still likely face significant hurdles in Congress. For example, sections that address improvements to the home healthcare system and calls to create jobs at "prevailing wages in safe and healthy workspaces" have little to do with "infrastructure" as defined previously.
The AJP proposes raising the federal corporate income tax rate from 21% to 28%. The Tax Cuts and Jobs Act of 2017 (TCJA) reduced this rate from 35%, and, unlike some TCJA provisions, that cut was meant to be permanent. The Biden proposal also includes provisions to increase the global minimum tax rate on U.S. corporations from 13% to 21%, place a minimum tax on corporate income and remove incentives to register corporate headquarters or intellectual property overseas.
The healthcare “infrastructure” spending along with corporate tax increases will likely be two of the biggest legislative challenges – outside of the overall cost of the bill on top of the recent $1.9 trillion COVID-19 relief bill.
What’s the concept behind the bill? And, more importantly for investors, what stock market sectors stand to benefit from the programs the bill could create?
As the world’s population grows, virtually every country faces pressure to upgrade existing infrastructure or launch new developments. This trend, paired with the Biden administration’s agenda, will offer an opportunity for investors seeking to diversify their equity portfolios and generate income that tends to react positively to inflationary threats.
The large size and long duration of these intended infrastructure projects tend to be capital-intensive and perfect for the creation of multi-year jobs both public and private. Most investment in our economy comes from the private sector, yet certain things – roads, bridges, train stations, water treatment, airports, and shared infrastructure – tends to be government-funded. And our new administration has made it clear that on their agenda this is a major priority.
Investing in any form of infrastructure still leaves one susceptible to risks related to regulations, political activity, and even natural disasters beyond standard return on investment (ROI) considerations. Yet, just as the adage of “Don’t fight the Fed” exists when the government pours money into something, you know where to probably look for opportunities, too. Look at the cyber- and internet-security industry that did not exist 25 years ago before the federal government invested billions in the internet and broadband online access for more segments of the general population.
Just as the AJP bill itself has many facets; investors will have many companies in multiple industries to choose from that stand to benefit from much-needed infrastructure work. Paved roads and bridges are covered with asphalt and cement with plenty of steel rebars running through them. Along with these, resources such as crushed stone, iron, sand, and gravel will be abundantly needed. Companies that provide these raw and finished materials should do well.
Additionally, building materials companies that specialize in the materials used in large construction and infrastructure projects will benefit handsomely. Makers of large trucks, trailers, and such heavy equipment as asphalt pavers, compactors, excavators, pipelayers, backhoes, and just about everything else for a major infrastructure project are eying multi-year paydays.
Also, chemical products are used in flame retardants, wastewater treatment, and assorted environmental applications. Mining of copper, silver, gold, and other earth metals are needed as resources for the builders of the machines and equipment to construct and operate the new plants and transportation facilities.
AJP has traditional items within transportation infrastructure, including roads, bridges, the rail network, and airports. Yet the largest and most novel share in the bill is $174 billion to develop a national electric vehicle charging network and electrify the federal vehicle fleet. This is not only an opportunity for investment in electric vehicles (EVs) but also in the industries that provide batteries, maintain the smart power grid and dispose of “non-green” items.
And though the Army Corp of Engineers (who will figure highly in the work of the plan’s projects) are exemplary skilled professionals, at the state level private civil, electric, mechanical, landscape, and other engineers will be retained to plan, design, and, in some cases, build the new infrastructure.
The infrastructure plan, in short, not only stands to change the face of our nation but the face of your portfolio and returns as well – if you recognize the opportunity and plan ahead before you invest.
by Walid Petiri
Walid Petiri is the owner of Financial Management Strategies, LLC (FMS), a Registered Investment Advisor established in 2000. He has over two decades of financial experience that covers virtually all areas of finance, from tax, insurance, stockbroker, personal financial planning, and personal banking to corporate credit, business planning, and consumer lending. In 2017 FMS Institutional Services was launched, and he leads the institutional consulting services delivered that include; investment policy preparation, asset allocation, manager search, due diligence and selection, and the design and implementation of diverse and emerging manager programs.
He is a graduate of New Jersey’s Montclair State University with a degree in both business management and finance. Mr. Petiri is a recipient of the Accredited Asset Management Specialist designation from the College of Financial Planning in Denver, Colorado.
Mr. Petiri has frequently been heard on WEAA (88.9 FM) as a financial commentator, who appeared on WMAR-TV 2 regarding the 2008 & 2009 economic downturn. Mr. Petiri has been interviewed and quoted by CNBC, the Investment News magazine, and Bankrate.com, written for the Journal of Personal Finance, The Register, Popular Finance (of China), Minority Enterprise Advocate Magazine, The Wall Street Journal, Aging News Alert, Morningstar.com, USAToday.com, TheStreet.com, Wall Street CheatSheet and publishes a monthly financial advice column called the Foresight.
Walid was featured in SmartCEO Magazine - Baltimore for the 2012 Top Money Managers Wealth Management. A member of Bethel African Methodist Episcopal Church, he is a devoted parent to his son and daughter. Walid serves on the Finance Committee of Associated Black Charities, and the Board of Directors for the Reginald F. Lewis Museum and has Chaired the Investment Committee.
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