Opinion: Top Money Managers Expect These Green Energy Companies To Benefit Most From Biden’s Infrastructure Plan

President Biden‘s infrastructure spending proposal is a real catch-all, supporting everything from basic infrastructure to broadband to home health care workers.

The proposal offers $ 621 billion to modernize transportation infrastructure, including changes favoring electric vehicles (EVs), according to the Wall Street Journal. 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. Read: These infrastructure stocks could skyrocket, helped by Biden’s spending plan. To find some of the best investment angles, I consulted with two managers of money that have excellent records. Before we hit stock, first some high-level impressions of Biden’s proposals. Overview of Biden’s Proposals Electric vehicles and energy efficient buildings are “really important megatrends in sustainable energy that we’re paying a lot of attention to,” says Andy Braun, who manages the Pax Large Cap Fund PAXLX, + 0.31%. Your fund has outperformed its Morningstar Large Mix category by five percentage points, annualized, over the past three years. Another key angle for investors is that Biden’s spending initiatives would reinforce similar plans in the two major economic centers outside the US: Europe and China. This amplifies the impact, notes Jonathan Waghorn of the Guinness Atkinson GAAEX Alternative Energy Fund, + 1.62%. His fund outperforms its Morningstar foreign small- and mid-cap value category by an impressive 21.8 percentage points, annualized, over the past three years, according to Morningstar. The fund is converting into an exchange-traded fund (ETF) called SmartETFs Sustainable Energy II SULR, + 1.85%. Governments aside, there is a third force for investors. Increasing use of renewable energy and reducing buildings’ carbon footprint makes economic sense for businesses, Waghorn says. This is important, because investing based solely on government spending plans can be risky. Now here’s a look at the green companies that these two money managers say would get a boost if Biden’s infrastructure plan passes.Electrification of transportation The obvious games here are companies like Tesla TSLA, + 3.10% on vehicles and lithium ion batteries, and ChargePoint. CHPT Holdings, + 10.49% and Blink Charging BLNK, + 3.92% in charging stations. But both Braun and Waghorn, instead, look beyond these to highlight the companies that make the building blocks and components that support this trend. For example, consider ON Semiconductor ON, + 2.77%, one of the top holdings of 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 the electricity in electric vehicles, from the charging process to driving. It also makes sensors that are used in cars. Next, consider Infineon Technologies IFNNY, + 2.04%, which specializes in power semiconductors that regulate electricity in cars. This is one of the main holdings of the SmartETFs Sustainable Energy ETF, and another ETF that Waghorn helps manage in this space called SmartETFs Smart Transportation & Technology MOTO, + 1.05%. He also likes Samsung SDI, a pure Korean lithium-ion battery that’s building partnerships with European automakers. Braun, in Pax Large Cap Fund, highlights the participation of the Aptiv APTV fund, + 1.65%, which offers software, components and electrical power distribution systems used in electric vehicles. TE Connectivity TEL also stands out, + 0.28%, which manufactures connectors and sensors used in electric vehicles. Reducing the carbon footprint “Buildings are a major culprit for greenhouse gas emissions, an issue we have felt strongly about for years,” says Braun. Biden’s plan to spend hundreds of billions to help make commercial buildings and homes more energy efficient would boost business at Trane Technologies TT, with -0.71%, offering low-cost climate control systems. consumption. Waghorn highlights Ameresco AMRC, + 1.25%. The company helps clients improve the energy efficiency of buildings through the use of LED lighting, photovoltaic solar energy sources, and modifications to heating, ventilation and cooling systems. His funds also own the Hubbell HUBB, -0.01% in energy efficient lighting. “Aggressive target” Biden wants to completely remove carbon emissions from the power grid by 2035. “That is an enormously aggressive target,” says Waghorn. Whether the United States gets there or not, green energy companies will benefit as the government distributes subsidies and incentives to try to make this happen. Waghorn’s SmartETFs Sustainable Energy II holdings that he believes will benefit include NextEra Energy NEE, + 0.86%, an energy company that uses renewable energy from the wind and sun; and Ormat Technologies ORA, + 3.17%, a utility company that uses geothermal and solar energy. Disadvantages of the proposals While Biden’s infrastructure and green spending initiatives would help companies in the sector, they may not really help stocks overall, for two reasons. First, someone has to pay for it. A large part of the expense on the invoice would be borne by the companies, and this will affect the profits. Yardeni Research’s Ed Yardeni estimates that without any tax increases, the S&P 500 SPX, + 0.82% earnings per share (EPS) would rise to $ 215 by the end of next year. Tax increases can affect that substantially. “We estimate that Biden’s tax increase would reduce the S&P 500’s earnings per share by $ 15 to $ 200,” says Yardeni. Economists at Bank of America estimate that Biden’s corporate tax proposals would affect the S&P 500’s earnings by 7%, about the same amount as Yardeni’s estimate. Then the stock market may have already included the price of Biden’s additional stimulus. Bank of America tracks an interesting metric, the relationship between the S&P 500’s market capitalization and the M2 money supply. The average since the financial crisis has been 1.4. It is now at 1.7. This suggests that the market was already anticipating a $ 2 trillion stimulus, say Bank of America economists. Michael Brush is a MarketWatch columnist. At the time of publication, it had no positions in any of the stocks mentioned in this column. Brush has suggested TSLA and ON in their stock newsletter, Brush Up on Stocks. Follow him on Twitter @mbrushstocks.