President Biden’s Inflation Reduction Act passed in the House of Representatives late last week. The bill includes $369 billion in provisions related to climate and energy. Its passage paves the way for price gains for a select group of stocks to buy.
These funds are earmarked to benefit wind and solar power production while helping reduce the price of electric vehicles (EVs), making them more affordable to more Americans. Importantly, the bill also includes $1.5 billion to be used by oil companies to reduce greenhouse gas emissions under the threat of penalty for failure to do so.
The bill will put the United States on a path to reduce greenhouse gas emissions by 40% in 2030 compared to 2005 levels. Here are several stocks to consider which should benefit from Biden’s climate deal.
| TSLA | Tesla | $937.64 |
| F | Ford Motor | $16.36 |
| GE | General Electric | $79.68 |
| ENPH | Enphase Energy | $303.03 |
| NEE | NextEra Energy | $90.66 |
| TPIC | TPI Composites | $22.66 |
| BEP | Brookfield Renewable Partners | $39.28 |
Stocks to Buy: Tesla (TSLA)
Most of the news surrounding Tesla (NASDAQ:TSLA) in the last few days relates to CEO Elon Musk selling large chunks of its stock. The sales were catalyzed by an upcoming court case in which Musk may be forced to purchase Twitter (NYSE:TWTR).
While the ongoing drama introduces volatility into Tesla’s share price, Biden’s climate deal serves as a strong tailwind. According to InsideEVs, the new EV tax credits “would be limited to trucks, vans and SUVs with suggested retail prices of no more than $80,000 and to cars priced at no more than $55,000.”
That means Tesla’s Model S, which starts above $100,000, would be ineligible. However, Tesla’s Model Y and Model 3 vehicles would both benefit from the tax credit. Model 3 car prices begin at just under $47,000 with the Model Y SUV starting at just under $66,000.
So, the tax credits should go a long way in states like California, where the Model 3 and Model Y are the number-one sellers and should help TSLA stock move higher.
Ford Motor (F)
Legacy automotive icon Ford Motor (NYSE:F) and its stock should benefit greatly from the provisions in the Inflation Reduction Act. In particular, Ford stands to benefit from the removal of former tax credit caps. Those caps previously limited the number of tax credits to the first 200,000 vehicles sold.
The cap has been removed with the passage of the Inflation Reduction Act. That means all EVs produced by a manufacturer will now be able to use the tax credit provided they meet the act’s other provisions. For Ford, this is a massive catalyst as it pivots toward increasing electric vehicle sales.
The reason is simple. Ford is planning to reach a 600,000 global EV run rate by 2023. That includes 270,000 Mustang Mach-Es in North America, Europe and China as well as 150,000 F-150 Lightning trucks in North America and 150,000 Transit EVs for North America and Europe. In other words, Ford no longer has to worry about how to allot 200,000 EV tax credits across its North American sales.
Stocks to Buy: General Electric (GE)
Even before the Inflation Reduction Act, there were signs that investing in General Electric (NYSE:GE) stock is starting to make sense. One big reason is that GE is splitting into its constituent pieces in the next two years according to recent reports. And indications are that GE will be worth more in pieces than it is as a conglomerate of three current businesses.
As noted, the company currently consists of three headline businesses: GE Aerospace, GE Healthcare and its power and renewables business, which will be rebranded as GE Vernova. The good news here is that GE Vernova, although the least valuable of GE’s current businesses, directly benefits from the IRA act.
GE Vernova represents a portfolio of constituent businesses all related to new energy. The idea here is that the company will be able to move in a much more nimble manner once separated from its parent firm and will be able to capitalize on subsidies within Biden’s climate plan.
Enphase Energy (ENPH)
A month ago, solar stocks including Enphase Energy (NASDAQ:ENPH) were looking to be heading downward. The catalyst: Sen. Joe Manchin was hesitant to support climate spending. The initial $550 billion earmarked for climate provisions was beyond what he would accept, as he believed it would serve to further increase inflation.
Manchin acquiesced to the bill’s passage after the value of climate provisions decreased to $369 billion in total. He only did so after conferring with former Treasury Secretary Larry Summers and receiving his assurance it wouldn’t increase inflation further. So, Enphase Energy is now in position to benefit whereas only a month earlier it was trading lower.
ENPH stock and company management certainly love the news. It should serve to draw more attention to the stock in the near future. Investors should tread carefully though — Enphase Energy shares are already fully priced on the back of multiple quarters of earnings beats.
Stocks to Buy: NextEra Energy (NEE)
NextEra Energy (NYSE:NEE) stock comprises the largest utility company in the U.S. and a clean energy business focused on wind and solar along with battery storage. The good news is no matter how you look at the company, it has performed quite well recently.
When the company released earnings in July the news was positive: Florida Power and Light, its utility business, saw net income increase to $989 million from $882 million in the previous quarter.
NextEra Energy Resources, its clean energy business, saw net income figures reach $133 million in the most recent quarter. That represented a drastic turnaround, as NextEra posted a $315 million loss in the same period a year ago.
Biden’s Inflation Reduction Act makes NEE stock much more attractive, as its provisions strongly incentivize the solar and wind power the company produces.
TPI Composites (TPIC)
Biden’s climate deal is going to be a direct boon to TPI Composites (NASDAQ:TPIC) and firms like it. The Arizona manufacturer of composite wind blades now sits in prime position to benefit from rising sales moving forward.
Basically, there’s good reason to believe TPI Composites should see a spike in demand for its wind blades moving forward. That’s because the inflation Reduction Act extends the investment tax credits and production tax credits given to clean energy firms. Meanwhile, it also extends accelerated tax depreciation schedules that benefit firms.
Sales decreased 1.4% in Q2, falling to $452.4 million. But TPI Composites sold 783 of its blade sets during the period. That represented a 7.14% decrease. That means prices increased, and the company should see demand rise as Biden’s climate deal takes effect, so it’s in a strong position now.
Stocks to Buy: Brookfield Renewable Partners (BEP)
Brookfield Renewable Partners (NYSE:BEP) is a clean energy company that owns a portfolio of renewable energy generation facilities. Those facilities span North America, Colombia, Brazil, Europe, India and China. The good news is the majority of production comes from its North American operations, making Biden’s climate deal a major boon for the firm.
The company experienced a 25% increase in revenues, reaching $1.27 billion in the quarter. That led to net income results that were 10.9% stronger overall and suggest BEP was investment grade prior to the Inflation Reduction Act.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
