• Adoption of enabling technologies. The legislation provides substantial tax credits, $9 billion in rebates and a $1 billion grant program to fund residential electrification and energy-efficient technologies, including heat pumps, rooftop solar, electric HVAC, water heaters and home appliances. Among the target areas are construction, food/water supplies and waste reduction—some of the themes of the JPMorgan Climate Change Solutions ETF (TEMP).
Water, Tech, Road/Bridges
Collectively, the three bills also provide stimulus for these goals:
• Cleaning up water supplies, a theme of the Invesco Water Resources ETF (PHO), First Trust Water ETF First Trust Water ETF (FIW), iShares U.S. Infrastructure ETF (IFRA) and Evoqua Water Technologies Corp (AQUA), a water and wastewater treatment systems and technology company that also provides emergency water supply solutions.
• Expanding broadband access and 5G. Beneficiaries include T-Mobile (TMUS), Qualcomm (QCOM) and chipmakers that sell 5G network gear, including Marvell (MRVL), Broadcom (AVGO), Intel (INTC), Texas Instruments (TXN). Also likely benefiting will be cell tower REITs including American Tower (AMT) and Crown Castle (CCI), which benefit from small antennas required for 5G, sited in in urban areas (5G’s short relay ranges require more towers than 4G). Other beneficiaries of the legislation would include Microsoft (MSFT), Cisco (CSCO) and those in the iShares Cybersecurity and Tech ETF (IHAK), which owns market leader CrowdStrike (CRWD).
• Increasing the global competitiveness of the American semiconductor industry. The CHIPS act is to apply about $53 billion to, among other things, “reshoring," or moving to American soil, chip plants owned abroad by domestic companies. This should help the VanEck Semiconductor ETF (SMH) and, specifically, KLA (KLAC) and Applied Materials (AMAT), which build equipment for chip manufacturing. Despite the high global demand for semiconductors, their ubiquity in electrical consumer products and their good earnings, many companies in this industry are nonetheless battered by the bear market. Much of this damage is from being tarred with the broad Nasdaq brush, dipped in the negative paint of upstart firms with high share prices and no earnings. Yet before and now, there are some solid companies in this category—examples of what I call tech at a reasonable price (TARP). The CHIPS act is just another reason to own the best of these companies—especially at current prices.
• Energy research. The CHIPS act includes $67 billion for the Department of Energy, including a $50 billion authorization for the DOE’s Office of Science to enable cutting-edge research and development in clean energy to fight the climate crisis and foster projects for advanced computing and clean manufacturing. It also will fund the DOE’s national laboratories to further energy research conducted directly by the government and by universities and contractors. Leasing space to the government and contractors for this purpose are two REITs: Alexandria Real Estate Equities (ARE) and Easterly Government Properties (DEA).
• Traditional infrastructure: highways, bridges, tunnels, water ports, airports and utilities. Many suppliers, manufacturers and service firms in Global X U.S. Infrastructure Development ETF (PAVE) have already benefited from the infrastructure act of 2021, in some cases early on, from widespread anticipation than it would pass. The bear has of course consumed gains of many of these stocks. Deere, Trane, CSX, Norfolk Southern, Steel Dynamics and Trimble remain down for the year. Yet Nucor, a specialty steel company whose shares were trading at $140 in mid-September, is up from $110 when the infrastructure legislation passed in 2021.
Targeted investment in funds and companies that stand to benefit from the legislation is a long play that can heighten gains for advisors who select stocks based not just on the coming stimulus, but also on existing merits.
Dave Sheaff Gilreath is a founding principal and CIO of Innovative Portfolios, an institutional money management firm, and of Sheaff Brock Investment Advisors. Based in Indianapolis, the firms manage about $1.4 billion.