Two laws passed by Congress in the last year — the Bipartisan Infrastructure Law and the Inflation Reduction Act (IR Act) — will end up funneling a massive amount of money to many kinds of infrastructure companies. As a result, it’s an excellent time for medium- and long-term investors to buy cheap infrastructure stocks.
In May, the White House announced that $110 billion of funds authorized by the Infrastructure Law had been released up that point, and a White House aide said an additional $100 billion would be spent “in the short future.” But the law allocated a total of $1.2 trillion, including $550 billion in new spending over a decade. Any way you look at it, a huge amount of money is still going to be doled out over the coming months and years.
Meanwhile, the IR Act will tremendously benefit clean energy producers. Among the largest beneficiaries of Uncle Sam’s generosity will be water infrastructure companies, solar energy firms, hydrogen companies and manufacturers of electric vehicle (EV) chargers.
Cheap Infrastructure Stocks: Evoqua Water Technologies (AQUA)
I selected Evoqua (NYSE:AQUA) stock in my June column on infrastructure names, noting just in this fiscal year, states will receive $3.2 billion for water infrastructure projects.
Evoqua “provides water and wastewater treatment systems and technologies, and mobile and emergency water supply solution.” As a result, I believed the company was very well-positioned to benefit from the big money Washington was going to spend on water infrastructure.
Since my column was published, AQUA stock has climbed about 10%. In this case, I think it’s a good idea to stick with a winning pick.
Fueling my optimism, the company reported fairly strong fiscal third-quarter results on Aug. 2. Specifically, the company’s top line jumped 19% year-over-year (YOY) to $439 million, coming in $7.6 million above analysts’ average estimates. Excluding the impact of acquisitions, its revenue rose 9% YOY. Moreover, its net income surged 33% YOY to $17.6 million.
“As water becomes more complex, Evoqua’s essential treatment technologies make clean water more accessible,” the company’s CEO, Ron Keating, said on the company’s Q3 earnings call. “Because of this, the long-term market trends are very favorable, and we expect our business to remain resilient through normal market cycles.”
And referring to the infrastructure bill, Keating said, “We would expect to see orders from that come early ‘23 with revenues starting toward the latter half [of] ‘23.”
The forward price-to-earnings (P/E) ratio of AQUA stock is a somewhat high 36x. But given its huge opportunities from the Bipartisan Infrastructure Law — which probably are not baked into analysts’ 2023 estimates for the company — I believe AQUA stock qualifies as one of the best cheap infrastructure stocks to buy.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) is another name I included in my previous column, and it turned out to be a great pick. Indeed, the shares soared roughly 67% since my article was published on June 9. As with AQUA stock, I recommend investors stick with this winner.
Plug Power is very well-positioned to win big from both laws passed by Congress. As Seeking Alpha columnist Dilantha De Silva recently explained, under the IR Act, “Qualified clean hydrogen producers will be eligible for a tax credit of between 60 cents and $3 per kilogram of clean hydrogen during a 10-year period beginning on the date such production facility is placed in service.”
The $3 tax credit contained within the law will make green hydrogen cost competitive with the much more widely used blue hydrogen, which is created from natural gas. As a result, green hydrogen, of which Plug Power is a pioneer, is set to gain a huge amount of market share in the U.S.
And importantly, CEO Andy Marsh recently reported Plug Power is poised to become profitable in 2024. What’s more, with the company currently building many green hydrogen production facilities in the U.S., it’s well-positioned to benefit tremendously from the rapidly increasing demand for the fuel in America and many other nations.
Moreover, as I pointed out in my previous column, Plug will also benefit a great deal from the Bipartisan Infrastructure Law. Plug’s current market capitalization of $15.5 billion tremendously undervalues the huge amount of profits that it will make over the longer term from green hydrogen. As a result, it’s one of the best cheap infrastructure stocks to buy.
Cheap Infrastructure Stocks: First Solar (FSLR)
As I pointed out in my Aug. 4 column, First Solar already operates a large solar module factory in Ohio and is seeking to build another such facility in the state.
Consequently, it’s in a great position to benefit from the IR Act more than most of its competitors. That’s because, for solar modules manufactured in the U.S., the law provides a significant tax credit of 7 cents per solar module, “multiplied by the capacity of the module.”
Agreeing with and greatly expanding on my assessment recently was KeyBanc analyst Sophie Karp. In response to the passage of the IR Act, she upgraded her rating on FSLR stock to “overweight” from “sector weight.” The analyst estimated First Solar could obtain up to $400 million of tax credits from the law, while its revenue and gross margin should reach $3 billion and at least 20%, respectively, by 2025.
Karp set a price target of $145 on the shares.
On the date of publication, Larry Ramer was long shares of PLUG stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
