The U.S. is poised for a manufacturing boom as companies tap into government subsidies, with pledges to spend tens of billions of dollars on new projects. One example of this is the Inflation Reduction Act (IRA), which was passed by Congress last August. Measures in the IRA to support climate change initiatives alone are worth roughly $400 billion over a 10-year period.
This legislation is conservatively estimated to mobilize over $1.6 trillion in clean energy capital.
Many companies will benefit from the U.S. government incentives in the IRA. So, how can you invest to get in on this government gravy train? Let me fill you in some stocks that I believe could double within 18 months, and that are not AI-related.
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There are a number of climate-related subsectors that will benefit. These include: carbon capture and storage, manufacturing green hydrogen, capturing methane emissions from landfills, upgrading electric grids, and clean energy sources like wind and solar.
I want to give you one example of a company that is benefiting a lot and that keeps hitting 52-week highs, trading at an all-time high near $188 a share.
It is Quanta Services (PWR), which builds, maintains and improves electricity grids. In 2022, 72% of revenues came from utilities and renewable energy developers.
Through a combination of organic growth and acquisitions, Quanta has grown into the largest provider of transmission and distribution (T&D) contracting services in the United States, with approximately a 15% market share and growing.
Quanta will benefit from accelerated capital spending by electric and natural gas utilities, as well as from the expansion of 5G services and rural broadband.
If we just look at the growth potential for Quanta's electric segment, it is estimated that U.S. will require $30 billion to $90 billion of incremental transmission investment by 2030 and an additional $200 billion to $600 billion from 2030 to 2050.
In addition, the company is well positioned to benefit from the $1.2 trillion infrastructure spending bill. This legislation included funds for renewable energy and electric vehicle charging stations, as well as for technology aimed at helping utilities to manage extreme weather conditions.
In July 2022, Quanta Services was selected to be a lead provider in the rollout of a national electric vehicle charging network. The company will provide turnkey engineering, construction, and program management solutions for the project.
The company's very smart October 2021 Blattner Energy acquisition is helping it to benefit from the rising spending on solar and wind projects. Blattner Energy is one of the leading utility-scale renewable energy infrastructure businesses in North America, providing engineering, procurement, and construction services (EPC) for solar, wind, and biomass projects. The company has a market share of approximately 30% for wind and 10% to 15% for solar, positioning it at the top of the renewable EPC industry.
Add of this up and it should not come as a great shock that Quanta – in its latest quarterly earnings release – said it had a record backlog of $25.3 billion.
However, Quanta only garners a C in the POWR Ratings, although I do expect it to climb. PWR scores best on Growth, with a Growth rank ahead of 81.88% of US stocks. Its strongest trending metric is Stability, having moved up over the last 178 days. It ranks lowest in Value, with a high valuation as investors anticipate rising earnings.
Luckily, there are a number of companies in this sector that are also going from strength to strength, and from 52-week high to 52-week high.
Here are just two more examples:
B-rated MYR Group (MYRG) offers electrical construction services for transmission and distribution lines, substations, commercial and industrial buildings, and renewable energy. The company has a record backlog of $2.67 billion. The stock is trading at $133, up 55% over the past year and 44% year-to-date. Sentiment is the area where MYRG ranks best; there it ranks ahead of 87.66% of US stocks. The strongest trend for MYRG is in Quality, which has been heading up over the past 178 days. Its current lowest rank is in the Stability metric.
A-rated Emcor Group (EME) is a leader in mechanical and electrical construction, industrial and energy infrastructure, and building services. The company has a healthy project pipeline reflected by its record remaining performance obligations of $7.87 billion, which grew $1.92 billion, or 32.3%, year-over-year. The stock is trading at $175, up 70% over the past year and 18% year-to-date. Quality is the area where EME ranks best; there it ranks ahead of 89.15% of US stocks. The strongest trend for EME is in Growth, which has been heading up over the past 178 days. Its current lowest rank is in the Stability metric, where it is still better than 69.97% of US stocks.
Notice though how all three companies I brought to you attention have record backlogs.
I expect the backlogs for all three firms to continue to grow substantially. The Inflation Reduction Act and other legislation, like The Chips Act, will boost spending in these sectors a lot over the next 10 years, with much of the spending earmarked to power generation.
That's why it would not surprise me to see these stocks doubling within 18 months to two years.
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PWR shares were trading at $185.33 per share on Tuesday afternoon, down $0.62 (-0.33%). Year-to-date, PWR has gained 30.12%, versus a 14.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Tony Daltorio
Tony is a seasoned veteran of nearly all aspects of investing. From running his own advisory services to developing education materials to working with investors directly to help them achieve their long-term financial goals.
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