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Biden Presidency's Top Stock & ETF Picks (Jan 2021)
🕑 Added 2021-01-23 09:42:17 +0000 UTCWhether you like it or not, Joe Biden is the 46th President and the Democratic Party controls the White House, HoR, and Senate (with tie-breaking vice president). As such, the Biden administration will have a significant impact on policies that will affect many different sectors. Since the Senate is split but favors democrats due to Kamala Harris' ability to break a tie, controversial legislation has a reasonable chance of passing.
Regardless of your political views, we must organize our portfolios to take advantage of the likely changes the administration will push.
This post will identify some key industries and their ETFs likely to benefit from the next few years of legislation. I'll also do my best to identify a particular stock in that industry, or at least a sub-ETF that will capture the most profitable set of companies.
tl;dr: Long shares or LEAPS of ICLN or TAN; YOLO, MSOS, or IIPR; DRIV or LIT; BDX; and PAVE or ACM.
Renewable Energy
It is no surprise that the Biden administration and the democratic congress will push for increased renewable energy use. We will likely not see the most extreme positions in the Green New Deal pursued with any immediacy. However, we will almost certainly see at least some of the goals pursued and appropriated money.
In terms of renewable energy, we look at the following goals:
- Meeting 100 percent of the power demand in the United States through clean, renewable, and zero-emission energy sources.
- Building or upgrading to energy-efficient, distributed, and ‘smart’ power grids, and working to ensure affordable access to electricity.
With these goals in mind, we should assume that the government will take steps and allocate money toward renewable energy. This should be no surprise. Note that no one actually has the expectation to reach 100% renewable energy anytime soon. These are long-term goals to work toward with no deadline or immediate requirements.
Biden has already signed the following executive orders which demonstrate a willingness to prioritize renewable energy:
By rejoining the Paris Accord, the US will be expected (non-binding) to pursue renewable energy while poorer countries continue to use fossil fuels until they are better postured to make the expensive transition to renewables. By cancelling the Keystone XL Pipeline, he has demonstrated a willingness to harm the fossil fuel industry in favor of renewables.
To take advantage of this, we should invest in the renewable energy sector through the iShares Global Clean Energy ETF (ICLN). There are other renewable energy ETFs, but ICLN has the highest daily volume and so is the most liquid and most likely to increase in price sustainably.
ICLN's largest holdings include Plug Power and Enphase, which are involved in hydrogen fuel cells and solar power respectively. Both will benefit from government subsidy, endorsement, and tax incentives. Even without government support, solar energy will likely continue to flourish based on continuously dropping costs, making them attractive to consumers and municipalities.
Although I cannot recommend any particular solar company like ENPH or FSLR since I do not have the background to do so, I do believe that in the competition among the different forms of renewable energy, solar will eventually win out and become the dominant source.
Solar is not geographically restricted to places with wind. Solar can be used at the individual property level, whereas no one is putting a windmill on their roof. Solar plants do not have to be built on coasts or near volcanoes. And solar panels are easy to maintain and install compared to other sources.
Because of my bullish view on solar energy specifically, I believe the Invesco Solar ETF (TAN) stands to benefit. Among TAN's largest holdings are ENPH, SEDG, FSLR, and DQ. If and when solar power comes to dominate the movement to renewable energy, these companies will likely all see tremendous increases in revenue.
Mikey's Play: I do not own ICLN or TAN, but I intend to purchase LEAPS or shares of TAN periodically over the next 12 months.
Cannabis
Anyone who has followed my posts so far knows that I am excited about the high probability of decriminalized cannabis. Although Biden has not yet used the L-word, we can also hope for unadulterated legalization. Given the popularity of decriminalization, I would not be surprised if the old man comes around and endorses recreational use. This presents a phenomenal opportunity for the cannabis industry to finally hit the treasured US market.
The US cannabis industry is nascent. No one knows how it will unfold and which companies will turn a strong profit. Therefore, I am playing the industry through ETFs. You can get a full run-down of these options here: How to Buy the Dankest Kush Stocks.
There are many cannabis ETFs. I recommend 2 of which over the others.
1) YOLO: AdvisorShares Pure Cannabis ETF
2) MSOS: AdvisorShares Pure US Cannabis ETF
The difference between the ETFs is where they find their holdings. YOLO holds companies in both the US and Canada. MSOS holds exclusively US companies.
As such, YOLO has a higher proportion of companies that are already seeing increases in revenue. Perhaps more importantly, YOLO's Canadian companies have the potential to benefit from partnerships with US companies. I expect Canadian companies to merge with US firms, and this will benefit the purchased companies in YOLO's portfolio.
MSOS, by contrast, holds US companies only. While they may still benefit from mergers at a fundamental level, I believe MSOS holders will not see the immediate benefits of holding Canadian companies that form alliances with US companies to access the market. Canadian companies have the potential to take off once they have a larger customer base, so I choose to have exposure to those companies as well. Those who think the US will be more protective of its domestic cannabis industry would do better with MSOS.
For those who want to target one company specifically, my recommendation is Innovative Industrial Properties (IIPR). The name is a euphemism for "Greenhouse REIT." IIPR is a Real Estate Investment Trust that specializes in equipment and facilities for growing marijuana. Since it's inception in 2016, both earnings and revenue have exploded, and the share price has grown accordingly. Add a 2.52% dividend and you've got some extra gravy. This stock is a winner.
Mikey's Play: Merrill Edge blocks trading of cannabis stocks, forcing me to hold positions in Robinhood instead. Currently hold 1x APHA 4/16 $10c and 17x shares of YOLO. I intend to add YOLO and IIPR shares when Merrill Edge allows them.
Electric Vehicles and Associated Infrastructure
We can refer once again to the democratic party's interest in environmental protection and the public's increasing interest in electric vehicles. Looking right past government endorsement of electric vehicles, it is becoming apparent that consumers are just really sick of having internal combustion engines that force them into costly repairs every few years. Not having to buy gasoline is also nice.
But in terms of the democratic environmental plan, we can refer again to the Green New Deal:
- Overhauling transportation systems in the United States to eliminate pollution and greenhouse gas emissions from the transportation sector as much as is technologically feasible, including through investment in – (i) zero-emission vehicle infrastructure and manufacturing; (ii) clean, affordable, and accessible public transportation; and (iii) high-speed rail.
In terms of point (i), I refer to this proposal on electric vehicles in which Biden and the democrats plan on pushing for a second round of Cash for Clunkers in which consumers would receive $3,000 for trading in old gasoline cars to upgrade. If that goes through, I would take advantage.
Although Tesla (TSLA) is easily the best-positioned to benefit from increased demand for EVs, the industry is going to expand. GM and F are about to produce EVs. FSR wants back in the game. NIO might make it to the US. And AAPL plans on making some whips. Additionally, let's not forget that these companies are making cars in collaboration with other companies. GOOGL, MSFT, and QCOM are among the businesses that will likely benefit regardless of who sells the most cars.
Because the industry is wider than just TSLA, I prefer to utilize the Global X Autonomous & Electric Vehicles ETF (DRIV) to take the whole industry at once. Among DRIV's largest holdings are TSLA (of course), Toyota, Nio, software/hardware manufacturers. The ETF would likely expand to grab F and GM once their electric vehicles hit the market. Its 0.29% dividend won't turn any heads, but the ETF is up over 16% YTD. There are other EV ETFs like KARS and IDRV, but DRIV has by far the highest volume.
All of the big EV manufacturers use lithium batteries. These companies need a supply of lithium to function, and increased demand means increased prices. This will benefit the lithium industry. The Global X Lithium & Battery Tech ETF (LIT) is an excellent choice for those who want to approach it from that angle. The ETF holds a bunch of lithium players I've never heard of, but among them is ALB, which leads the lithium industry.
If you do prefer one company, TSLA still rules. Sales are up, the company swung to a profit, joined the S&P500, and I don't need to tell you about the stock. Demand for Teslas will only increase.
Lastly, I point to goal (ii) of the above Green New Deal. The party plans to provide cleaner public transportation. This will extend to USPS services. Although it is still unconfirmed if they have a deal with USPS, Workhorse (WKHS) is a solid choice for speculation. Working arrangements with the USPS position WKHS to supply one of the largest fleets in the world, and, provided funding, the USPS would probably love to get their hands on vehicles with more longevity than what they're currently using.
Mikey's Play: Long 560 shares of AAPL with DRIP and 4x ITM LEAPS. Long 3x shares of TSLA with intent to buy more. No positions on DRIV or LIT, but plan on purchasing shares or LEAPS on DRIV periodically in 2021.
Healthcare
Not only are we dealing with Coronavirus, but Americans are getting older and sicker in general. The healthcare industry would continue doing well even without a coordinated COVID-19 response.
However, Biden has pledged to get the US back ahead of the power curve in fighting the pandemic. Among his litany of executive orders already signed is the establishment of a coronavirus response team in charge of spplying medical equipment.
Although I normally start with the ETF, I will start with the stock this time: Becton, Dickinson and Company (BDX). BDX has a portfolio of medical supply products. Among the most important are disease testing kits, syringes, and IV-associated equipment. To respond to coronavirus, the government must mass-immunize and test. This will require continuous resupply of millions of units. In addition to their regular suite of products, they will likely get tagged to support immunization efforts and provide increased revenue.
Of course, this assumes BDX wins contracts to supply the government. I believe they are a likely choice. And if BDX does not end up being integral in the Covid response, then at least they are a dividend aristocrat that pays an increasing $3.32 (1.27%) dividend. It isn't much, but being part of the dividend aristocrats means increasing it every year.
If you are unconvinced, consider playing healthcare a different way: Global X Telemedicine & Digital Health ETF (EDOC). Telehealth services increased 154% last year, almost certainly in part due to Covid. However, people are likely to have enjoyed getting their routine checkups done through telehealth, and it will only become more important as Americans spend more time checking in with their physicians remotely.
EDOC holds companies designed to facilitate telehealth services through prescription fulfillment, record-keeping, communications, and genome evaluation. Of course, there is always the ARK Genomic Revolution ETF (ARKG), which seeks to really take the cutting edge by holding companies looking to solve some of healthcare's biggest challenges from a biological standpoint.
Mikey's Plays: Long 100x shares of ARKG with intent to purchase more. Intend to purchase shares of EDOC later in 2021.
Infrastructure
Stop me if you've heard this one before: the new administration wants to pass an infrastructure bill to repair America's roads and bridges. We have seen this story every year for a decade. Let's count on Biden and his party to get it done. Doing so will count on support from Congress, which appears to view infrastructure spending favorably. It's time.
In keeping with the Global X trend, I present Global X U.S. Infrastructure Development ETF (PAVE). PAVE and its catchy name invest in exactly what you would expect: domestic infrastructure development, including companies involved in construction and engineering; production of infrastructure-based materials; industrial transportation; and heavy construction equipment.
The ETF's holdings don't consist of many household names since they are focused on heavier development you likely don't see frequently unless you're in the civil infrastructure industry. Among them are URI, a company that rents our construction equipment; and TRMB, which provides data and software that enable construction. There is little doubt that companies like this would see dramatic increases in demand for their services when and if an infrastructure bill provides the funding.
In choosing a particular stock, I point to another Green New Deal goal:
- Repairing and upgrading the infrastructure in the United States, including . . . by eliminating pollution and greenhouse gas emissions as much as technologically feasible.
- [From prior bullet]... and (iii) high-speed rail.
The US's renewed interest in clean transportation, better infrastructure, and rail specifically point to AECOM (ACM) as a likely winner. ACM is a global powerhouse when it comes to infrastructure projects. Across several continents, ACM is actively facilitating the improvement of all sorts of infrastructure through its consultation and contracting services.
On the fundamental level, ACM is doing more for the public than it is for its investors. People love having a new train network built, but margins are razor thin, and the company is not making enough money to please investors. ACM needs a turnaround, and a big infrastructure bill can provide that impetus. With no dividend and stagnant revenue, investors must rely on government spending to provide a needed boost.
At present, earnings is negative, but revenue has clocked over $13 billion for at least the last 4 years. Given a fresh set of infrastructure projects to manage, ACM will likely swing back to a profit and bring its investors some good news.
For what it's worth, ACM also happens to be the only company to ever plan hyperloop projects. Even if the US stays way behind Europe when it comes to rail, ACM has its hands in Europe too.
Mikey's Plays: Wife holds 50 shares of ACM.
Final Thoughts
There is no way to be positive which projects will actually pass until it happens, after which point, you may have already missed the largest proportion of the rise. It is therefore important to invest in companies or ETFs hat you believe will perform well regardless of which Biden goals come to fruition. ICLN and DRIV are likely to be the strongest performers from my point of view and may therefore be the best choices for speculation.
