These 4 sectors are set to benefit from President Biden’s American Families Plan, UBS says

Joe Biden Stimulus
  • President Biden is set to unveil the second part of his infrastructure-spending package, dubbed the American Families Plan.
  • UBS Wealth Management says greentech, semiconductors, financials, and industrials will benefit from the new bill.
  • The UBS team also believes Biden’s planned tax increases will only mildly affect earnings per share.
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In a new client note, UBS Global Wealth Management laid out four sectors set to benefit from President Biden’s second infrastructure spending bill, dubbed the American Families Plan.

Mark Haefele, the firm’s chief investment officer, said that unlike many market commentators, he doesn’t believe Biden’s infrastructure spending has been fully priced in.

According to Haefele, President Biden’s American Families Plan – together with the American Jobs Plan – could amount to a $4 trillion investment in US infrastructure, and much of it has yet to be accounted for.

Haefele’s UBS team said they believe four sectors will see gains from the historic infrastructure spend: greentech, semiconductors, industrials, and financials.

(1) Green tech

With “a meaningful portion” of President Biden’s infrastructure spending plan dedicated to decarbonization initiatives, UBS expects Greentech companies to be the biggest beneficiary of the incoming record spend.

Companies that operate in electric vehicles, renewable power, clean energy, energy efficiency, and water and electric grid upgrades should perform well, according to UBS.

The suppliers for Greentech firms are also set to outperform during 2021. UBS said it has been “tactically adding exposure” in Greentech firms and their suppliers over the last few months amid a pullback for high-flying tech names.

(2) Semiconductors

President Biden has allocated $50 billion to subsidize domestic semiconductor manufacturing and research in a move to combat China’s growing dominance in the field.

UBS expects this will help US-based manufacturers expand their footprint in 2021 and beyond, making the sector a top pick for investors.

Intel already announced plans to add $20 billion worth of foundry capacity in March.

(3) Industrials

The obvious pick to benefit from infrastructure spending is industrials, and UBS agrees. The wealth management office said steel and aggregate (cement) companies stand to benefit from Biden’s spending.

However, the UBS team also said it cut exposure to steel companies recently due to outperformance in the sector caused by supply imbalances.

The wealth management group said as supply constraints improve over the next year they expect steel companies to “come under pressure.” US Steel is already up nearly 250% over the past year alone.

(4) Financials

Finally, UBS believes the financial sector will benefit from infrastructure spending due to higher interest rates.

The wealth management office said a move toward higher interest rates as the economy reopens will “more than offset” modest drags from tightening regulations.

The team also said they see President Biden’s combined infrastructure plans boosting GDP by 0.5 percentage points and that earnings per share will grow 12% next year thanks to above-trend GDP growth.

Higher taxes, which are expected to pay for at least part of the infrastructure spending, will also only trim S&P 500 profits by about 4% in 2022, based on UBS’ research.

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3 reasons why the recent electric vehicle stock-price correction isn’t the end of the road for the EV trend, according to the world’s largest wealth manager

2022 GMC Hummer EV 1
2022 GMC Hummer EV.

Electric-vehicle stocks have taken a hit the past few weeks amid a rotation away from highly valued tech and growth names, but that doesn’t mean it’s the end of the road for the EV boom, according to Mark Haefele, chief investment officer of UBS Global Wealth Management.

Long-term technological and environmental shifts suggest the boom should continue, while acknowledging that volatility in the share prices of individual companies argues for investors to diversify their exposure. Still, Haefele’s team said investors should consider the underlying data.

Elon Musk’s Tesla has led an incredible boom for electric vehicles over the past few years, and in 2020 alone, sales of electric cars rose 43% while overall car sales slumped 20%, according to data published on Tuesday by EV-volumes.com. The market has grown so much that these days, Tesla is just one of dozens of competitors in the rapidly-expanding industry.

In fact, Tesla’s share of the US EV market fell to 69% in February, down from 81% in the prior year, a Morgan Stanley report found.

It’s getting more crowded, too, as every major car company in the US has said they will be entering the EV market.

General Motors recently pledged to invest $27 billion to launch 30 EV models by 2025, and it has showed off new cars like an electric Hummer, which is set to be released in 2022. Ford released the Mustang Mach-E, which has taken market share from Tesla, and VW recently unveiled its plans to build six “gigafactories” in Europe by 2030 to aid with its EV business.

In China, EV players like SAIC Motor Corporation are targeting the lower-end market with cars starting at just $4,465. The company sold over 25,000 Hong Guang Minis in January alone.

Public transit is also getting a revamp from EV companies. Proterra, a company that makes electric public and school buses, inked a deal to go public via billionaire investor Chamath Palihapitiya’s SPAC Arc Light Clean Transition Corp. in January.

Read more: Buy these 30 stocks that are best-placed to benefit from the pandemic’s ‘seismic shifts’ and continue surging in its aftermath, BTIG says

Many analysts argue the EV boom is set to continue. Wedbush’s Dan Ives said in a recent note to clients that he believes the “EV party and transformation is just beginning as this industry is on the cusp of a $5 trillion market opportunity over the next decade.”

Haefele and his team agree with Ives, detailed below are three reasons why they see a long way to run for the EV boom.

  1. “Electric vehicles continue to rapidly gain market share. Electric vehicle sales have been rapidly gaining market share. The diverging paths of automakers have been confirmed during the pandemic. While the overall auto market contracted by 15% in 2020, global electric vehicle sales rose by 43%, reaching a 4.2% market share. This trend looks set to continue and will benefit pure EV makers, as well as traditional automakers that are adapting fastest to the growing consumer preference for electric vehicles,” Haefele and co. wrote.
  2. “Electrification of vehicles is still ‘The Next Big Thing’ in the automotive industry. Tighter emission regulations mean there is no alternative to the switchover from combustion to electric engines – be they battery electric vehicles (BEV), plug-in hybrid electric vehicles (PHEV), or fuel cell vehicles (FCV). This move toward electric has also been embraced by traditional automakers such as Volkswagen, which has pledged investment of over EUR 50bn in its EV strategy as it aims to catch up with Tesla,” Haefele and co. wrote.
  3. “The transformation underway in the auto sector goes beyond drive trains. We see parallel technological advances in the sector, along with a shift in consumer preferences away from ownership. On technology, progress is being made in areas such as autonomous driving, helped by the rollout of 5G networks. On the issue of ownership, increasing mobile connectivity and changing preferences among younger age groups are leading to the rise of car-sharing models. In the future, using a car will not automatically mean owning one. Overall, we foresee potential sales of some USD 400bn connected to our Smart Mobility theme by 2025, of which electrification represents more than half, an eight- to nine-fold increase on today’s figure,” Haefele and co. wrote.

Read more: An innovation ETF is crushing competitors with 40% returns this year even as tech stocks flounder. The provider breaks down its 2-part playbook for selecting moonshots – and knowing the perfect time to sell

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