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Stocks have 'more room to grow' following Biden's infrastructure plan: Analyst

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CFRA Research Analyst Elizabeth Vermillion joins Yahoo Finance Live to discuss what to expect from the industrial sector after Biden unveiled his infrastructure plan.

Video Transcript

AKIKO FUJITA: Well, President Biden is set to meet with a bipartisan group of lawmakers today to discuss his $2 trillion infrastructure bill, while Vice President Kamala Harris travels to North Carolina to push for the bill as well. Certainly, we've already seen some cyclical stocks see some big gains on the back of the proposal, but our next guest says there's still much more upside to come. Let's bring in Elizabeth Vermillion. She's CFRA's research analyst. Elizabeth, it's good to talk to you today. Give me a sense of how much of this has already been priced into the market because you've been looking at specific names that you think could be significant beneficiaries on the back of this proposal if, in fact, it passes in its current form.

ELIZABETH VERMILLION: Hey, yeah, so thanks for having me today. So like you said, there is a lot that we feel really is priced in so far, but that does not mean that there's not more room to grow. So just kind of the general infrastructure spending is what we're seeing is priced in now, and where there's room to grow is going to really come from the more specifics of the plan, so where that green funding is targeted, how much emphasis company's current sustainability and goals toward zero emission-- where they're currently at right now. I think that's going to really play into who's chosen for certain projects.

So if a company doesn't have a lot of focus on working towards zero emissions but they have really great machinery, they might not be chosen for the work on whether it's road building or bridges or things like that. So companies who are already working towards more sustainability and more electrification, we see those names with that extra upside, in addition to just the general benefits to infrastructure and industrial names from a spending plan's-- from a spending plan.

ZACK GUZMAN: Yeah, I imagine, just by itself, the infrastructure plan would be a big boost to Caterpillar or Deere or some of these other, you know, names we're talking about here. But beyond it, just when you look at the economic data, of course, kind of a strange event here in a pandemic, not necessarily what we would normally see in an economic cycle. But when you go back and kind of look at those recoveries, you know, from a position where companies may have been pulling back to now spending more on things like infrastructure and investment here, what do you see maybe historically in where this kind of expansion cycle might go?

ELIZABETH VERMILLION: Yeah, so I mean, this definitely is a more unique time. So comparing it to some of those historical upcycles is definitely a little bit different than usual. But names like Deere and Caterpillar, they tend to perform well when the company is in-- or when-- sorry, when the economy is in an upcycle like this, and specifically when it's an industrial upcycle, so something like focusing on infrastructure. So that's an extra benefit to them.

We've seen a lot of particular focus on those two names, as well as some peers like Cummins and other trucking companies, because those companies are really pushing for electrification, working on their sustainability. Deere is a company that has been focusing on their R&D and on smart technology for a long time, and that's a trend that we've really seen getting a lot of focus during the pandemic. People have not been able to be in physical presence for their machines, and so working on the smart technology is something that we've really seen develop as a big trend.

And Deere is really leading the way. They have been for years. They have smart tractors where you can access the onboard computer from remotely. And so trends like that we see really taking off in the next few years and allowing these companies to perform above, potentially, what would have been a normal cyclical upswing, just because of this new technology aspect on top of just a regular cyclical upswing from increased demand and volume.

AKIKO FUJITA: What about some of those companies that are likely to be beneficiaries on the back of this new push to expand renewable energy? You look at a company like GE, for example, really invested in wind energy, for-- how do you see some of those names performing, especially if this bill goes through?

ELIZABETH VERMILLION: Yeah, so if this bill goes through, those companies are definitely going to really take off. So some areas that we see-- one of the areas of focus in infrastructure is electrification and grid modernization, so you're going to see a lot of construction engineering companies. So names like Jacobs Engineering and Quanta-- those companies are going to really take off if this spending bill goes through and if a lot of the project work is focused on grid modernization, which we really think it will be because that's something that both Democrats and Republicans are really focused on in their proposals. It's something that, you know, is really going to be important for the future of just the economy, as well as infrastructure. And so things like that are definitely going to push some of those companies ahead. The companies who are investing in these trends that we've been talking about really are, we think, going to see an outsized growth, compared to companies that are having to start those R&D projects and play catch-up.

AKIKO FUJITA: Yeah, it feels like we're looking at a pretty big portfolio-- or broad portfolio, just given how broad the bill itself or proposal has been so far.

ELIZABETH VERMILLION: Yeah.

AKIKO FUJITA: Elizabeth Vermillion, CFRA research analyst, it's good to talk to you today.