The U.S. election date is fast approaching.
So far, it’s anyone’s game.
Sure, the polls show Biden leading. But let’s not forget that this was also the case four years ago when these same surveys were projecting a Hillary Clinton victory.
And with the two candidates each promoting radically different policies, what turn will the United States’ economy take in 2021 remains a mystery.
For investors, this represents a problem.
Let’s say you invest in a green energy stock. It would do much better under Biden than under Trump.
On the other hand, an oil & gas stock would welcome Trump’s presidency more, since his stance on the fossil fuel industry is laxer than Biden’s.
So, you must be careful where you place your bets.
The safest option is to look for industries that will benefit from either outcome.
And while Trump and Biden represent two opposite sides of the poles, fortunately, some of their policies overlap.
This Macroeconomic Principle Is Crucial To Profiting From The 2020 Elections
Before I tell you which stocks to buy, there’s one macroeconomics 101 concept I would like you to understand first.
It’s how a country stimulates its economy to get out of, or prevent recessions.
The way it does it is through stimulative policies, which can come either from the central bank or from the ruling administration. When it comes from the former, we’re talking about a monetary stimulus. And when it’s from the latter, we’re calling it a fiscal stimulus.
At this stage, the Fed has pretty much exhausted all its tools with which it can support the economy. I shared a table of those in a tweet yesterday in case you’re interested.
What it has left are negative interest rates and yield curve control. Neither is particularly stimulative. The purpose of these two policies is rather to provide stability in the financial system.
Meaning, monetary policies are off the table. The United States can’t rely on the Fed to get out of this crisis. It will have to resort to fiscal stimulus if it is to bring the economy back on track.
On the fiscal side, the tools at the administration’s disposal are increased spending, lower taxes, or a combination of both.
While I can see Trump doing another tax cut, Biden is talking about raising them. So, whether we see further tax cuts, we won’t know until after the election.
Besides, I don’t think tax cuts are as relevant for the current situation. I believe that a more likely outcome will be increased spending. It’s a better way to protect and create jobs.
The government is already doing this in the form of stimulus checks.
But while these encourage Americans to go out and spend, which prevents job losses, another fiscal tool is more appropriate for creating new ones.
It’s a nation-wide infrastructure plan.
And this is where both candidates’ policies overlap.
Sure, Trump’s infrastructure plan is focused on upgrading the country’s transportation system, while Biden is looking to turn America green.
Either way, one thing is clear—the winner from either policy will be the construction industry.
And I think that’s where you should place your bets.
3 Infrastructure Stocks Ready To Soar In 2021
So, with the United States looking to receive a major overhaul in 2021, here are three stocks that will profit from it.
Number one is the iconic manufacturer of heavy equipment—Caterpillar (CAT).
This company typically does well right after recessions when the economic activity restarts.
From March 2009 to March 2011, for example, Caterpillar’s stock tripled in value. Likewise, when the global economic cycle turned around after the 2016 earnings recession, the stock doubled in less than two years.
So, this fact that we’re getting out of a recession alone is beneficial for Caterpillar’s business. But when you add a major infrastructure overhaul in the world’s biggest economy, it’s easy to grasp how this company could deliver stellar returns in the coming years.
My second choice is United Rentals Inc (URI).
This company is active in the same industries as Caterpillar, but with one difference—it doesn’t manufacture heavy equipment. It leases it.
Therefore, United Rentals’ stock price behaves similarly to that of Caterpillar. Following the last recession, it went up from about $4 to over $100 in only five years.
While I don’t see that reoccurring, I’m confident that an infrastructure plan would result in the stock doubling from where it is today.
Finally, I would suggest you consider Rio Tinto (RIO).
This is a mining company that generates the majority of its revenues by supplying two of the most critical construction metals—Iron and aluminum.
The former represents about 55% of the company’s sales, while the latter contributes 22%.
Rio Tinto also mines copper, another crucial construction material, representing about 12% of its portfolio.
Again, this is a stock that’s benefiting from both the new economic cycle and a potential infrastructure overhaul.
Meaning that Rio Tinto’s metals will be in high demand as we enter 2021.
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