I’ve been talking since last December about the windfalls set to come on the heels of the Biden administration’s Infrastructure Investment and Jobs Act.
The bill the president signed into law yesterday afternoon is a spending package worth about $1 trillion. Impressive as that sum is, it’s about half what was originally asked for.
But it’s still $1 trillion, and it’s going to have a massive impact on the market across a wide range of industries.
In the weeks and months ahead, we’re going to follow the money. We’re going to be jumping on stocks left and right.
This week, I’ve got my eye on two particular sectors. They’re already “warm,” but the federal spending will make these companies red-hot…
Electric Vehicles Are Due for a Huge Boost (Again)
Electric vehicles are back in the news, and that’s only partly thanks to Rivian Automotive Inc.’s (NASDAQ: RIVN) $100 billion debut.
The infrastructure bill throws EVs into sharp focus. The bill provides $7.5 billion in federal grants to build a national network of charging stations.
That’s a good start, but it will likely take more – much more.
In 2020, there were about 216,000 charging stations in the United States, but the International Council on Clean Transportation says the U.S. will need 2.4 million EV charging stations by 2030 if about 36% of new car sales are electric.
Based on those numbers, the United States will need to increase the number of charging stations by 1,011% over the next decade.
That’s a huge tailwind for electric vehicle charging companies, and it’s already showing up in recent quarterly earnings for Blink Charging Co. (NASDAQ: BLNK) and EVgo Inc. (NASDAQ: EVGO).
Thursday, after the close, Blink reported third-quarter results that included record revenue in both product sales and services.
According to the founder and CEO Michael Farkas, Blink has been awarded nearly $25 million in existing EV infrastructure grants, rebates, and incentives this year alone.
The stock jumped as high as 36.3% in last week’s trading, before giving back some ground in Friday’s session.
I see it coming back down a little more before it resumes its trend upwards. That’s going to give us a great entry price.
There’s more, too: If shares of BLNK come back down to $34.50 by Nov. 30, 2021, I like buying the BLNK Dec. 31, 2021 $37/$38 call spread for $0.33 or less.
That’s a great risk/reward profile because, based on that price, we’ll be risking $0.33 (our initial cost) to potentially walk away with a $0.67 profit when it expires.
EVgo, the other company I mentioned, is a Los Angeles-based company operating a direct current (DC) fast-charging network for battery electric vehicles in the United States.
Last Wednesday, it reported third-quarter results that included revenue of $6.2 million compared to $4.8 million for the second quarter of 2021, which represents 29% quarter-over-quarter growth. Network throughput has reached 8.0 gigawatt hours (GWh) with 31% quarter-over-quarter growth. Total customer accounts grew to more than 310,000 at the end of the third quarter of 2021.
Those are all good numbers, but shares of EVGO jumped as much as 96.29% in last week’s trading.
I like the company and its prospects for the future. But nearly doubling in a week? That’s too much too fast.
In yesterday’s session, the stock started sliding after Bank of America analysts threw cold water on that 96%-plus rally, pointing out that around 70% of EVGO shares are still locked up.
I’d look hard at this stock in the $10 range, but I like trading it right now for a quick, profit-taking reversal. I’d buy the EVGO Dec. 17, 2021 $16/$15 put spread for $0.50 or less. Plan on exiting the trade for a 100% profit, or if shares of EVGO trade up to $19.60 or more.
The next sector isn’t necessarily as exciting as EVs, but it’s in line for many, many times the government cash EVs will get, so the profit potential has my undivided attention.
Hundreds of Billions of Dollars Will Pour In
Of course, the lion’s share of the funds from the infrastructure bill are going to construction: $110 billion for roads, bridges, and other major projects, $66 billion for railroads, $65 billion for power and water systems… the list goes on.
I’m looking at two big players in that field that should have good returns into next year as these projects get funded.
Last month, I wrote about Granite Construction Inc. (NYSE: GVA), a California company that has 75% of its business in transportation infrastructure. It recently reported $4.3 billion in committed and awarded projects (CAP), which means its revenue stream is going to remain solid well into 2022. With the federal government set to flood the sector with even more contracts, you can bet that Granite will be a chief beneficiary of infrastructure spending.
You should also look at U.S. Steel Corp. (NYSE: X). This one’s pretty obvious – every company working on an infrastructure project is going to rely on U.S. Steel as a supplier! They’re on a huge rebound from last year, with third quarter financials showing net earnings of $2 billion, compared to a $234 million loss from Q3 2020. The infrastructure bill is going to guarantee it clients, which means guaranteed revenues, which makes investors happy.
— Shah Gilani
Source: Money Morning