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Materials stocks will benefit the most from infrastructure spending, analyst says

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Stanley Elliott, an analyst at Stifel Nicolaus, joins Yahoo Finance to discuss which sectors and companies could see the most upside from the infrastructure bill.

Video Transcript

EMILY MCCORMICK: But first, we begin with a discussion of the US infrastructure package. President Joe Biden is set to sign the about $1.2 trillion bill later this afternoon, which will include tens of billions of dollars each toward the country's electric grid, broadband, port infrastructure, and electric vehicles, among many other initiatives.

And for more on this, we're bringing on Stifel Nicolaus analyst Stanley Elliott to discuss. Stanley, thank you so much for joining us this afternoon. We've been talking for the past couple of months about how the infrastructure deal will be impacting stocks in the industrials, materials, and electric vehicle industries. Do you see further upside for these areas of the market as this legislation gets signed and as the spending makes its way into the economy?

STANLEY ELLIOTT: Yeah, listen, thank you very much for having me. And no doubt, what we're looking at here with this infrastructure bill is about $550 billion of incremental spending above and beyond what we would see as a normal run rate. So if you think about that, this is the largest increase that highways, streets, roads, bridges are going to-- will have seen from the federal government in probably about six decades.

JARED BLIKRE: And I'm looking at the YFi Interactive here at some of the stock movements that we've seen in the infrastructure group here over the last month. This is a trailing one-month. And a few names stick out here that I notice crossed off on your list as well. Here, we have Martin Marietta Materials. That's up nearly 50% year-to-date. Also, Summit Materials, that stock has more than doubled over the last year. Is it too late for some of these plays? Should people be waiting in right now, wait for the dip?

STANLEY ELLIOTT: No, I think that the opportunity here still looks quite attractive, right? Visibility is key for these names. These are stocks that typically do well. In an inflationary environment, do have pricing power. So when we look into 2022, the non-res market, we think, will end up recurring and returning.

But then when you start to think about 2023 and beyond, you know, the amount of moneys that are going to come in from this bill, we bet a run rate from the federal spending bill around $48 billion. And that's going to end up jumping to, say, $67.68 billion per year, just from the federal side, on top of what's been a very healthy state environment. So you're looking at a 40% sort of an increase on a run rate basis once these moneys start to come together.

EMILY MCCORMICK: And I'm wondering, too, as investors try to ascertain which of these players are going to be the biggest beneficiary directly from this increased government spending, what should investors be looking for? Is it companies that have large portions of their revenue coming from domestic sources, or what are the other key points that investors should be homing in on to figure out who could be the long-term winners from some of this increased investment?

STANLEY ELLIOTT: You know, we think anything that has a utilization component like a United Rentals, WillScott Mobile Mini. Those should end up boosting as well. You know, material names like Martin Marietta, Vulcan Materials, Summit, even Eagle materials. What you're seeing is some of the industry groups are thinking that this bill alone will add low single digit volume increases, both for aggregate demand, as well as cement. We've talked about the visibility being good for pricing. So we expect pricing strength to continue over the next several years.

So, all in all, anything that would go into developing these projects, we see should get a good lift from all of this. You put all this in perspective, I guess, one more data point here is that the $550 billion, that's about a 7% increase from what you see on the September census data on the construction numbers, which is about $1.6 trillion. So we should have some nice runway here as we go forward.

JARED BLIKRE: And we've been talking about a lot of stocks here that are in the traditional, what we would consider the traditional infrastructure sector. Talk about materials in particular. But also, I'm wondering, if you take a look at, for instance, some of the clean energy stocks, the fuel providers for EV, they got a huge boost because there's $7 and 1/2 billion allocated for them in this. I'm just wondering, this touches so many different aspects. I'm wondering, what's the end game here? How should investors really be playing this if they want to be diversified?

STANLEY ELLIOTT: Yeah, you know, the-- where we've done most of our focus has been on the machinery names and all the materials that go into those. And those are the names that we continue to see generally benefiting the most. In fact, that regardless of what sort of infrastructure you're talking about, whether it's the charging stations or the roads themselves, they're all going to require materials. They're all going to require some component to help labor get involved and move forward. So we see that as more of a broader range of way to play these names.

EMILY MCCORMICK: And as we look ahead, of course, the Build Back Better plan, that broader social and climate policy plan is still being debated in Congress right now. What sorts of policies are you ultimately expecting to come out of that? And how do you expect that additional potential investment here to be impacting some of these names as well?

STANLEY ELLIOTT: Yeah, that's a little bit of a further reach than anything that we're seeing here within kind of this recent bill here today. So I hate to speculate. We hear mixed things about what could end up happening with that on Congress. But, you know, as we're sitting here today, you know, the bill that should be signed into law later this afternoon, we think will be good for a number of stocks within our coverage group. And we still see this as very early and what we think could be a refresh or an extension of a multiyear cycle.

EMILY MCCORMICK: All right, we'll leave it there for now. Stifel Nicolaus analyst Stanley Elliott, thank you so much for joining us.