Aside from gun control, perhaps no other issue strikes fear in the hearts of Republicans and conservative-leaning independents like taxes. And in this category of trepidations, U.S. Sen. Elizabeth Warren might as well be Darth Vader. Sure, she comes off with a heavy dose of soccer mom vibes. But it’s taxes that this woman has in mind and that has political opponents and shareholders of infrastructure stocks thinking.
As you probably know, Warren made waves when she – along with her extremely liberal comrade-in-taxation Bernie Sanders and other Democrats – proposed “a 3% total annual tax on wealth exceeding $1 billion.” Further, these wealth tax proponents “called for a lesser, 2% annual wealth tax on the net worth of households and trusts ranging from $50 million to $1 billion.”
It’s not great news if you belong in this category – Mr. Navellier, I have a phone call for you – but it might be time to consider infrastructure stocks, especially if this goes through. With Democrats controlling Congress (albeit by the absolute slimmest of margins), the possibility of a wealth tax looms larger than normal.
But wouldn’t taxation of any form hurt economic activity, and thereby infrastructure stocks? Certainly, you can make that argument (as many Republicans do). Critical reports regarding the issue indicate that such proposals would reduce U.S. economic output over the long term. Also, a concern exists about how to value assets on the balance sheet. Wide interpretations of value can of course have a huge impact on total tax cost.
At the same time, America’s infrastructure is crumbling. And before you say anything, this was the case well before the novel coronavirus pandemic. So to Warren’s point, we’ve got to do something about this other crisis that relatively few people are talking about today. She sees taxes as the solution. Whatever ends up being the answer, you may want to consider these infrastructure stocks ahead of time:
- Vulcan Materials Company (NYSE:VMC)
- U.S. Concrete (NASDAQ:USCR)
- Caterpillar (NYSE:CAT)
- Norfolk Southern (NYSE:NSC)
- American Tower (NYSE:AMT)
- Knight-Swift Transportation (NYSE:KNX)
- Fuel Tech (NASDAQ:FTEK)
Because this is the internet, I do have to make some clarifying points: I don’t necessarily support Warren or the Democrats on this issue. The main takeaway is that the federal government will probably do something to address the basic foundations of this country. Ultimately, this would bode well for infrastructure stocks to buy.
Infrastructure Stocks: Vulcan Materials Company (VMC)
As the largest producer of construction aggregates – mainly crushed stone, sand and gravel – in the U.S., Vulcan Materials Company is easily one of the most pertinent ideas among infrastructure stocks if you anticipate a ramp-up in this sector. With Democrats eyeballing proposals to extract more tax dollars out of the super-affluent, it’s very possible that VMC stock could enjoy upside throughout the Biden administration.
Indeed, Vulcan shares have been resilient through the pandemic-impacted year of 2020. After an initial hit of volatility when the novel coronavirus first breached our borders, VMC stock then went on to higher ground, backed by contrarian investors who anticipated a road to recovery. Over the trailing year, VMC is up nearly 46%.
As well, on a year-to-date basis, Vulcan shares have posted a very respectable 17% return. We’ll see how this turns out. But with the fundamental necessity of infrastructure stocks, combined with political tailwinds, the future appears bright for VMC.
U.S. Concrete (USCR)
Given the explosive rise of U.S. Concrete, you’d think that former President Donald Trump won a second term. USCR stock has soared to nearly 74% since January’s opening session, which is a truly stunning performance. It’s almost like a technology firm but without the volatility and uncertainty that sector has suffered over the last few weeks.
If I’m being perfectly honest, most infrastructure stocks would probably perform better under Trump thanks to his America First promise – and an aggressive foreign relations policy to boot. Plus, on a very cynical basis, the former president’s push to build the southern border wall would have set up a robust fundamental tailwind for USCR stock.
But that’s neither here nor there. Infrastructure stocks could still perform very well under liberal leadership. And if Warren gets her way, this would imply more funds for building America’s foundations, even if it does come at a cost of economic output in other sectors.
Arguably Trump’s favorite among infrastructure stocks, Caterpillar represents everything that makes America great: it’s big, it’s bold, it’s American. Of course, I think it’s fair to point out that Caterpillar’s management team likely has a far more diplomatic approach to its brand messaging, considering that it has a far-reaching multinational operation.
Still, at least on paper, CAT stock would appear a beneficiary of Trump’s patriotic – and perhaps lovably anachronistic – stance on domestic and world affairs. On the other hand, President Biden doesn’t seem to share the same love for infrastructure stocks as “The Donald.” Should stakeholders be concerned?
Not when you have “taxation with representation” Elizabeth Warren on hand to corral the troops. Admittedly, she’s probably not going to get her wish to the fullest extent she’s seeking. However, the narrative about rebuilding America – after all, wasn’t it Biden’s promise to build back better? – does seem to offer CAT stock substantive support.
Infrastructure Stocks: Norfolk Southern (NSC)
Should the Biden administration make a concerted effort to rebuild this country – like he promised, I might add – you may want to consider Norfolk Southern as one of the infrastructure stocks to buy. For one thing, NSC stock has demonstrated resilience despite the Covid-19 impact, with shares up over 71% on a YTD basis.
Again, as long as we continue to make slow but steady progress with our economic recovery efforts, Norfolk Southern could still attract more bullish interest. During the worst of the pandemic’s effect on the underlying industry (May 2020), rail freight carloads dropped a staggering 29% year-over-year. Since then, however, freight carloads have increased dramatically – though admittedly, there’s much work to be done.
With help from a supportive administration, it’s possible for NSC stock to maintain its positive momentum. With Covid-19 cases declining sharply and many jurisdictions relaxing its mitigation protocols, Norfolk is certainly one to watch closely on economic and political developments.
American Tower (AMT)
One of the criticisms that Joe Biden faced during the campaign trail is that he seemed like someone more comfortable using a rotary phone than a smartphone. Therefore, the idea of considering American Tower as one of the infrastructure stocks to buy might be mentally jarring.
Here’s the thing about that – while I don’t the have highest of confidence in President Biden, I trust that he has advisors that will guide him in areas outside of his expertise. If I’ve learned anything about Biden last year, it’s that he listens to the science, even to the point of wearing the biggest mask Donald Trump has ever seen.
Let’s get serious though. If the current administration is serious about building back better, you can’t do it lagging in the 5G rollout. Therefore, AMT stock should see upside as the underlying company has decades of experience building, deploying and managing neutral-host wireless networks.
Knight-Swift Transportation (KNX)
Among the hardest hit infrastructure stocks due to the pandemic were companies associated with the transportation sector. With discretionary commerce almost completely off the table, Knight-Swift Transportation and its peers suddenly saw a severe haircut in their revenue stream. Back in April 2020, truck tonnage declined nearly 9% YOY, according to data from the U.S. Bureau of Transportation Statistics.
However, KNX stock may be on the comeback trail. As of the latest read in truck tonnage (December 2020), this key metric is up slightly YOY. Further, with the Biden administration looking to bolster infrastructure stocks and help get Americans back on their feet, Knight-Swift may offer contrarian investors an opportunity for upside.
Tempting this thesis is that KNX stock is performing decently so far in 2021, up almost 9% YTD. However, this is well below some of the hot plays in the broader infrastructure market. True, there’s a reason for the performance lag, namely the tough economic landscape. Still, with an overt political tailwind, this is one to keep on your radar.
Infrastructure Stocks: Fuel Tech (FTEK)
One of the lesser-known infrastructure stocks – and I would argue one of the riskier ideas – Fuel Tech nevertheless offers a compelling take for this sector. Primarily specializing in air pollution control, Fuel Tech not only facilitates a cleaner environment (obviously a big plus for the Biden administration), it also provides process optimization and combustion efficiency.
Of course, on the surface, this doesn’t seem to align with Biden’s vision of a green America. However, before we can fully transition to clean energy infrastructure, we must work efficiently with the platform that we have. Also, FTEK stock is a play on the transition to clean energy – more than likely, the shift will not be an overnight affair.
While Fuel Tech is relevant, you’ve got to watch out for the fact that FTEK stock is priced under $4. That puts it into penny stock territory for many folks. But if you can tolerate the risk, this might be something worth considering.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.