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Bi-Partisan Bets on an Infrastructure Plan

A bi-partisan proposed infrastructure plan, to be considered when Congress convenes in January, is designed to put people back to work, suggests John Eade, analyst with Argus Research.

The following areas of the economy stand to benefit from the government spending, which could total as much as $1 trillion. All stocks featured are rated "buy" by Argus analysts.

Business Services

United Rentals (URI) is one of the largest equipment rental providers in North America, with a broad range of equipment for the nonresidential construction and industrial markets.

More from John Eade: Argus Research Targets Buys in Aerospace & Defense

Given that the infrastructure spending plan will be financed at least in part by bonds, we expect a pick-up in issuance to benefit Moody’s (MCO) and S&P Global (SPGI). And lastly, Automatic Data Processing (ADP) and Paychex (PAYX) could get a boost processing more paychecks as the infrastructure plan puts as many as 16 million people back to work.

Communications & Security

To be sure, this is an important, if somewhat new, element of U.S. infrastructure and will no doubt be a focus in any spending plan.

Companies playing a key role here include cell-tower REIT American Tower (AMT); Raytheon (RTN), a defense prime with a growing cybersecurity business; Motorola Solutions (MSI), with a prominent business providing first-responder devices and networks for civil agencies such as police, fire, and corrections; and Palo Alto Networks (PANW), which provides integrated internet security solutions to enterprise customers.

See also: Stock Worries? Buy this Bond ETF

Construction Management

Jacobs Engineering (JEC) is a global provider of planning, consulting, architectural & engineering design, and construction management services for a broad range of infrastructure projects. Autodesk (ADSK), a recent Argus upgrade, provides design software used in the building, manufacturing and infrastructure industries. Accenture (ACN) is a blue-chip global management consulting company that brings projects to completion.

Energy/Utility

To get the money moving fast, Congress is likely to consider investments into “shovel ready” projects that are beyond the planning stages and under construction. Utilities with large infrastructure build-out programs (new transmission lines, grid enhancements, alternative energy projects) include NextEra Energy (NEE).

Water systems, including those from American Water Works (AWK), are also due for an upgrade. Companies in the water eco-system that are also poised to benefit include Ecolab (ECL), Roper Technologies (ROP) and Danaher (DHR).

Industrial Equipment

By the fall, local municipalities may be spending the federal taxpayer funds on roads, bridges, dams, etc. You will know when you see an increase of yellow earthmovers.

Indeed, the Machinery segment of Caterpillar (CAT) accounts for two-thirds of the company’s sales and has a leading market position. Eaton (ETN) is also a core industrial infrastructure play, with businesses including electrical systems and hydraulics.

Materials

The plan may prove to be the single, largest new investment in the nation’s infrastructure — roads, dams, bridges — since the Interstate Highway system was built in the 1950s. Initial estimates call for as much as $500 billion in spending on construction projects.

At the base of these structures will be steel and construction aggregates, among other commodities, produced by companies such as Vulcan Materials (VMC) and Nucor (NUE).

Transportation

The commodities must be moved from mines and mills to work sites. In the U.S., rail companies in position to benefit include Union Pacific Corp. (UNP) and Norfolk Southern Corp. (NSC). Truckers include J.B. Hunt Transportation (JBHT). Infrastructure spending will also be used to improve airports, benefiting companies such as Delta Air Lines (DAL) and Fedex (FDX).

Based on numerous requests from clients, we have designed a portfolio of companies followed by Argus Research that are BUY-rated and are in sectors that will likely benefit from government investment into infrastructure rebuilding.

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