President Joe Biden is expected to move forward with his campaign proposals. Before the Presidential election in November, Biden made it clear that he aims to “Build Back Better” and mobilize American ingenuity to build modern infrastructure and a clean energy future. He has already reinstated the U.S. to the Paris climate agreement just hours after being sworn in. Today’s article makes seven stock predictions for Biden’s first year.
In anticipation for more government spending, broader markets have been regularly hitting record highs since November. The positive atmosphere regarding economic recovery following the vaccine rollout has also provided tailwinds to equities.
I’ll discuss names that focus on green or alternative energy, nature-conscious sustainable infrastructure, and medical marijuana, another area that could also benefit if the U.S. were to legalize cannabis at the federal level. Although it is not possible to know how the next four years will pan out for equities, long-term investors are likely to see continued gains in these segments of the economy.
According to David Kass, Clinical Professor of Finance at the University of Maryland’s Robert H. Smith School of Business:
Although former Vice President Joe Biden is planning to raise taxes on high income earners and corporations, he is also planning to spend more to stimulate the economy by assisting those who were hurt by the lockdowns and overall reduction in economic activity induced in response to the coronavirus. Additional investment and spending on infrastructure should create many jobs.
Professor Kass further suggests, “The stock market should do well over time as President Biden‘s economic policies will result in greater stability in both domestic issues and international relations.”
With that information, here are seven stock predictions for the coming quarters under a Biden administration.
- Atlantica Sustainable Infrastructure (NASDAQ:AY)
- Caterpillar (NYSE:CAT)
- EnerSys (NYSE:ENS)
- Home Depot (NYSE:HD)
- Honda Motor (NYSE:HMC)
- Innovative Industrial Properties (NYSE:IIPR)
- Livent (NYSE:LTHM)
Stock Predictions: Atlantica Sustainable Infrastructure (AY)
52-week range: $17.73 – $47.15
Dividend yield: 4.25%
Our first company comes from the other side of the Atlantic. The Brentford, United Kingdom-based Atlantica Sustainable Infrastructure owns a diversified portfolio of contracted renewable energy, efficient natural gas, electric transmission, and water assets globally.
As the name implies, the company’s focus is on sustainable infrastructure that could potentially benefit from increased global emphasis on the segment.
Q3 financial results released mid-November 2020 showed revenue of approximately $303 million, up by 3.3% YoY. Profit of $89 million meant an increase of more than 200%. Diluted EPS was 86 cents, which doubled the earnings YoY.
Santiago Seage, CEO of Atlantica, cited, “We are thrilled to announce our first investment in district heating, a sector which is a key solution for cities and countries to reduce emissions, and with very attractive growth prospects. Calgary District Heating fits perfectly in our portfolio, increases our presence in North America and reaffirms our goal to transition towards a more sustainable world.”
Given the current green-interest of the new U.S. administration, AY stock is one of the strong choices to add if you have investments based on the New Green Deal. A level close to $40 will make the stock an even better deal.
52-week range: $87.50 – $200.17
Dividend yield: 2.28%
Illinois-based Caterpillar manufactures construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. InvestorPlace.com readers would be familiar with “Cat®,” the flagship brand of products and services. There are 165 independently owned Cat® dealers serving 191 countries.
According to financial results announced at the end of October, third-quarter revenues were $598 million, down by 25%. Profit decreased by 268% to $48 million, and profit per share was $1.22, down 218%. CAT ended Q3 with $9.3 billion of enterprise cash and more than $14 billion of available liquidity sources.
CEO Jim Umpleby commented, “Our third-quarter results largely aligned with our expectations, and we’re encouraged by positive signs in certain industries and geographies. We’re executing our strategy and are ready to respond quickly to changing market conditions.”
If Biden can keep up with his “Build Back Better” plan, there will be an uptrend infrastructure, energy, and mining. A recovery in any of these markets will directly have a positive effect on Caterpillar.
52-week range: $35.21 – $93.39
Dividend yield: 0.82%
Pennsylvania-headquartered EnerSys manufactures and distributes industrial batteries for a wide range of sectors from satellites to submarines, semi-trucks to substations, forklifts to 5G networks. Additionally, the company develops battery chargers and accessories, power equipment, and outdoor cabinet enclosures.
Second-quarter fiscal 2021 results were released in November. Net sales were $708.4 million, down 7% YoY. Non-GAAP adjusted net earnings was $43.2 million and decreased 18%. Non-GAAP diluted EPS of $1 meant a decline of 18.7% YoY. Operating cash flow was $217 million YTD. Cash and equivalents stood at $414,232 million, about $10.6 million less YoY.
President and CEO David M. Shaffer cited, “We now have the confidence to resume providing guidance for our upcoming fiscal quarter and we expect to achieve as-adjusted earnings of between $1.17 to $1.23 per share in our third fiscal quarter.”
EnerSys stock was favored in 2020 thanks to its strong product portfolio used in 5G infrastructures, transportation and defense businesses. There could be a big potential for ENS stock, considering the possible post-pandemic demand increase in various industries such as EV. So, a price below $85 could be a good level to buy for long-term investors.
Home Depot (HD)
52-week range: $140.63 – $292.95
Dividend yield: 2.19%
As the nation’s largest home improvement retailer, the Atlanta, Georgia-based Home Depot needs little introduction. It operates 2,200 stores in the U.S., Canada and Mexico.
2020 has been good for Home Depot metrics. Q3 numbers of mid-November showed reported sales of $33.5 billion, up 23.2% YoY. Net earnings were $3.4 billion, an increase of 21.4%, and diluted EPS was $3.18, up by 25.7% YoY. Cash and equivalents were $14.65 billion, nearly 7 times more than $2.19 billion of the same period prior year.
CEO Craig Menear stated, “The third quarter was another exceptional quarter for The Home Depot as we saw the continuation of outsized demand for home improvement projects, which has led to sales growth of more than $15 billion through the first nine months of the year.”
Home Depot performed well despite pandemic lockdowns. Analysts expect Biden’s policies to provide tailwinds for home sales figures. So, the uptrend in home improvement spending does not seem to end in 2021. With this information in mind, I suggest buying the dips in HD stock.
Honda Motor (HMC)
52-week range: $19.38 – $30.21
Dividend yield: 2.99%
Tokyo, Japan-based Honda Motors is well-known for its motorcycles and automobiles, which bring in over 80% of revenues. It also operates financial services and power products.
In early November, Honda Motor released FY2021 Q2 results. Consolidated sales revenue decreased by 2.1%, to 3,651.3 billion JPY. Profit was 240.9 billion JPY, an increase of 22.6% YoY. EPS amounted to 139.53 JPY, up 20% YoY.
In January 2021, Honda announced the collaboration with Cruise and General Motors (NYSE:GM) on self-driving vehicles. Takahiro Hachigo, president & representative director, commented, “This collaboration with Cruise will enable the creation of new value for mobility and people’s daily lives, which we strive for under Honda’s 2030 Vision of serving people worldwide with the joy of expanding their life’s potential.”
Considering all financial metrics and adding a possible Biden-effect for alternative-fuel vehicles, HMC is stock you may want to add to your portfolio without further due.
Innovative Industrial Properties (IIPR)
52-week range: $40.21 – $199.50
Dividend yield: 2.58%
Utah-based Innovative Industrial Properties is a real estate investment trust (REIT) that focuses on specialized properties leased to state-licensed operators for their regulated medical-use cannabis facilities. IIPR owns 66 properties that are 100% leased to such regulated cannabis operators.
Q3 results released early November showed total revenues of approximately $34.3 million, representing a 197% increase YoY. Net income was $18.9 million, up 205% YoY. Diluted EPS of 86 cents meant an increase of 56% YoY. Cash and equivalents stood at $161.1 million.
Since mid-summer 2020, IIP has “… acquired five properties, totaling approximately 448,000 rentable square feet (including expected rentable square feet upon completion of properties under development), located in Florida, Michigan and New Jersey.”
In an earlier interview of July 2019, CEO Paul Smithers credited the company’s “sale-leaseback program, which provides state-licensed operators with capital by acquiring and leasing back their capital without giving up equity” as part of the reason for IIPR stock’s success since going public in 2016.
During Biden’s presidency, there will likely be more extensions for medical-use cannabis growers supported by state and federal legislation. Yet, there are also risks such as volatility in cannabis-related stocks and increased competition due to newcomers. But if you believe in the future of medical-marijuana, any price drop will be an opportunity to buy into IIPR shares.
52-week range: $3.95 – $23.99
Dividend yield: N/A
Philadelphia-based Livent is a lithium technology company that supplies products for electric vehicle batteries, handheld devices, lightweight alloys and advanced polymers used in aircraft, athletic footwear, and other applications. With more than 800 employees globally, the company operates manufacturing sites in the United States, England, India, China, and Argentina.
The most recent quarterly earnings showed revenue of $72.6 million, down 25.6% YoY. GAAP net loss was $11.8 million, compared to the income of $18 million same period the previous year. GAAP net loss per diluted share was 8 cents. Cash and equivalents at the end of Q3 were $14.8, down by 36.5%.
CEO Paul Graves stated, “We continue to see evidence that demand for lithium compounds will accelerate in 2021 and beyond, with growing support for electrification from OEMs, governments and consumers, despite significant disruptions in 2020… Our ongoing partnership with Tesla and our agreement to invest in New Nemaska are examples of this.”
Biden clearly stands for green technologies, and the lithium market has already benefited from that. Seeing the 52-week high price in late January, LTHM is already up about 5.2% YTD. LTHM stock will likely be a long-term winner, but it may be more prudent to watch for price declines to buy into.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.