Since the November election, Wall Street has been looking for investments that are likely to benefit from President Biden’s policies. But of course, this has meant that it is tough to find cheap stocks!
Yet the rally has been uneven. And yes, there are some interesting stocks to buy that are at reasonable valuations.
For Wall Street, the focus is on the proposed $2.3 trillion infrastructure plan. The biggest part of it is for the U.S. transportation system, which sorely needs an upgrade. The Biden plan intends to spend a hefty $621 billion on this.
Another big item will be for manufacturing — at about $300 billion. Then there will be $213 billion for affordable housing.
Given the razor-thin majority the Democrats have in Congress, it will be tough for Biden to get everything he wants. But even if the infrastructure plan is smaller, it will still likely have a big impact on many companies.
But infrastructure is not the only area that will benefit from his plans. No doubt, Biden will push for broader investments in areas like healthcare.
So, then, what are the cheap stocks to buy? Well, let’s take a look at seven:
- Oscar Health (NYSE:OSCR)
- Jacobs Engineering Group (NYSE:J)
- Bentley Systems (NASDAQ:BSY)
- Cleveland-Cliffs (NYSE:CLF)
- United Rentals (NYSE:URI)
- Iteris (NASDAQ:ITI)
- Cisco Systems (NASDAQ:CSCO)
Cheap Stocks To Buy: Oscar Health (OSCR)
Oscar Health, which is a healthcare insurance operator, came public in early March. But the reception was frosty, as the shares plunged by 11% on the debut. Yet this was not been the end of the losses. Note that OSCR stock has since fallen by roughly 36%.
But this actually looks like an opportunity. Given that President Biden was instrumental in creating the Affordable Care Act, he will certainly find ways to bolster the law — which will definitely benefit Oscar Health.
However, the company is not a typical insurance company either. Founded in 2012, the founders have focused on leveraging sophisticated digital technologies. It offers a highly popular mobile app. Then there has been the use of advanced analytics to help improve the customer experience.
The result is that Oscar has become a robust platform. The member base is 529,000 and the company serves 291 counties across 18 states. In terms of the policies, they include individual/family, small group and Medicare Advantage plans.
Of course, the market opportunity is enormous. According to the company’s own estimates, spending in this sector is at about $123 billion.
Jacobs Engineering Group (J)
Founded in 1947, Jacobs Engineering Group is one of the world’s top engineering services companies. The employee base is roughly 55,000 people and the company has projects across the globe.
Over the past few years, Jacobs has been focused on a major restructuring. This has included several divestures as well as acquisitions, such as for CH2M Hill Companies, The KeyW Holding Corporation and John Wood Group’s nuclear business.
The deals have allowed Jacobs to enter lucrative growth markets. They include areas like nuclear services, combat systems, command & control, and surveillance.
Such high-tech capabilities will definitely be critical in snagging contracts from the Biden plan. Infrastructure is much more than just brick and mortar.
As for the valuation on J stock, it is a fairly cheap stock — at least compared to other engineering companies — trading at a forward price-to-earnings multiple of 22x.
Bentley Systems (BSY)
Bentley Systems was launched back in 1984. The founders saw an opportunity to capitalize on the PC revolution to develop sophisticated software to help engineers design their projects.
Consider that the company remained privately held until September 2020. At the time, Bentley offered shares to the public and the BSY stock price has seen a nice run.
But there should be more upside for investors. As infrastructure spending grows, there will be increased demand for software tools. The good news is that Bentley has an extensive suite of technologies and the use cases are for public works, utilities, industrial facilities and commercial structures.
The software is also built for any type of environment. It can be used for on-premise, the cloud or the hybrid cloud.
Growth has also been steady. Last year, the revenues were up 10.4% to $696.7 million, despite the adverse impact of the novel coronavirus. Cash flow from operations has also remained strong, coming to $258.3 million, compared to $170.8 million for the same period last year.
Biden’s infrastructure plan will spur considerable demand for commodities, such as steel, iron ore and so on. And this is very good news for Cleveland-Cliffs.
If anything, the company is one of the best positioned steel companies. Part of this is that Cleveland-Cliffs has been cutting costs. Then there have been the bold acquisitions that have allowed much greater scale. In March 2020, the company purchased AK Steel. This was then followed up with the acquisition of ArcelorMittal USA in December 2020.
The result is that Cleveland-Cliffs has bolstered its automotive business and increased the market position in the US, such as for appliances, machinery, equipment and yes, infrastructure.
CLF stock is also cheap. Consider that the forward price-to-earnings ratio is a mere 5x.
United Rentals (URI)
United Rentals is poised to benefit from the infrastructure boom. Of course, the company provides critical services for leasing equipment for construction. It is actually the largest operator in the world.
The rental business requires a strong IT foundation because of the needs for optimizing for usage and risk. Next, there is a need to have branches to provide distribution and services.
Creating this system would be expensive and time-consuming. In other words, an attractive competitive moat underpins URI stock.
Granted, the past year saw a decline in the business — but this was primarily due to the pandemic. But as management noted in the latest earnings call, the company expects to return to growth in 2021.
The Internet-of-Things (IoT) is already a large market. But with the expected infrastructure spending, it is likely to see an acceleration in growth. This bodes well for Iteris.
The company helps manage sensors to improve the usefulness and efficiency of roads, highways and farms. This is done by using artificial intelligence, machine learning and advanced analytics. The company has more than 10,000 customers and has installed about 180,000 sensors.
Over the past few years, Iteris has transitioned its technologies to the cloud. The result is a new platform called ClearMobility Cloud, which should help increase growth. Iteris has also acquired TrafficCast, which is a developer of software for real-time traffic incident data.
And ITI stock does look cheap. According to Wall Street analysts, the consensus price target is $8, which assumes 27% upside from current levels.
Oh, and Iteris recently retained Moelis & Company to explore “alternatives to maximize shareholder value,” which could include a sale of the company.
Cisco Systems (CSCO)
In the Biden infrastructure plan, about $100 billion is set aside to make broadband widely available. This will certainly be a big boost for a myriad of tech companies, including Cisco Systems.
The company should benefit from an increase in sales for its core enterprise systems like routers and switches.
But of course, there are other trends that should add fuel to the demand. They include 5G, IoT (Internet-of-Things) and AI.
It’s true that the pandemic has pressured sales. But according to the most recent earnings report, it looks like things are on the mend.
Finally, CSCO stock is cheap at current levels. The forward price-to-earnings multiple is 15x while the dividend yield is 2.9%.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.