A big infrastructure spending bill might finally be in the cards

Joe Biden is now President and Democrats have gained a slim majority in the Senate along with the party’s control of the House. Does that mean that this is finally the time for Congress to pass a big, bold infrastructure spending bill that can help boost the economy?

There were high hopes in 2016 that either Hillary Clinton or Donald Trump would focus on infrastructure.

But after Trump defeated Clinton, not much happened on the infrastructure front — save for extending funding for the Obama-era Fixing America’s Surface Transportation (FAST) Act for an additional year when it was set to expire in September 2020. The money for the program now runs out at the end of September.

More will be needed, and some experts say it is politically doable even in a fractured environment.

“With the slim majority the Democrats have in the Senate, infrastructure spending is probably going to be one of the less controversial measures and could be implemented,” said Gautam Khanna, senior portfolio manager with Insight Investment. “A $1.5 trillion to $2 trillion package — somewhere in that zone — could get through.”

Of course, Biden and other political leaders are likely to prioritize more stimulus for consumers and businesses struggling due to the Covid-19 pandemic before tackling any new infrastructure initiatives.

Rebuilding aging transportation networks
But economists and investing experts say that spending more to rebuild roads and bridges, as well as building out high-tech infrastructure such as 5G networks, could also help provide jobs to those who need them and give a lift to the broader economy.

“There should be some sort of bipartisan road here for an infrastructure bill. How long have we talked about the need to rebuild?” said Hank Smith, head of investment strategy at Haverford Trust. “A bipartisan agreement could be an easy, early win for Biden and a net positive for the economy.”

A new infrastructure bill could also boost the sales and earnings for a variety of leading US companies in the industrial and tech sectors.

Companies that sell aggregates such as sand and gravel as well as makers of concrete and cement could benefit from any increased spending on transportation infrastructure.

“Where will infrastructure spending money go? Construction firms could benefit,” said Kristoffer Inton, director of basic materials equity research for Morningstar.”

“If you slice up a road, the amount of rocks going into it are numerous and they are not just the concrete and asphalt we can easily see,” Inton added, saying that companies like Vulcan Materials (VMC), Martin Marietta (MLM), Summit Materials (SUM) and US Concrete (USCR) could see increased demand.

President Biden and other Democrats are likely to push for increased spending on other types of infrastructure as well, including sources of renewable energy.

“It’s not just going to be spending on roads. Equally as important for infrastructure is the climate agenda,” said Josh Duitz, portfolio manager of the Aberdeen Standard Global Infrastructure Income Fund. “When you look at older infrastructure versus new infrastructure, we need both.”

Clean energy and 5G could also be part of an infrastructure bill
With that in mind, Duitz said his fund owns renewable energy companies such as NextEra (NEE) and Atlantica Sustainable Infrastructure (AY) but does not own more traditional infrastructure investments such as construction equipment giants Caterpillar (CAT) and Deere (DE).

Duitz thinks there are better investing opportunities with emerging industries and technologies. He said that increased investments in 5G wireless broadband networks will be critical as well in order to help bridge the digital divide in the country.

That’s why his fund owns cell tower owners American Tower (AMT) and Crown Castle (CCI) as well as fiber-optic construction firm Dycom (DY).

“Broadband needs to be part of a new infrastructure bill. It’s an essential service, especially as more people work from home,” Dultz said.

Others agree that green energy and 5G will be a priority. Nick Langley, portfolio manager at ClearBridge Investments, said tower company SBA (SBAC) and utilities Clearway (CWEN) and Brookfield Renewable Partners (BEP) could also be a beneficiary of a Biden infrastructure plan.

But he added that another old economy industry — railroads — could also thrive.

Langley said that companies like Union Pacific (UNP), Norfolk Southern (NSC), CSX (CSX) and Kansas City Southern (KSU) could benefit as the industry goes more electric and becomes more competitive with the trucking sector as a greener option for the long haul transportation of goods.

Still, there are questions about whether Congress will be willing to approve a big infrastructure package. There are concerns among some Republicans about the rising debt load. And the Democrats have a razor-thin majority in the Senate.

“The question with infrastructure is ‘will you have broad-based support’,” Insight Investment’s Khanna said. “Politicians will need to show it benefits society and taxpayers at large and can improve the economy and make it more productive.”

But even if Biden and other Democrats are able to make that case, they will still need to convince enough Republicans to come on board and support a big spending package. That may not be easy.

“It’s going to be complicated economically not to mention politically to get much more spending on infrastructure,” said Bob Doll, senior portfolio manager and chief equity strategist at Nuveen.

“Are the probabilities of something passing higher today than four years ago? Yes. But it’s not definite,” Doll added. “To varying degrees, people want an infrastructure bill. But what’s in it, what the size of it is and how you pay for it could be very different.”