On the 8th of November Joe Biden won the 2020 US presidential election, arguably a bittersweet day for Investors in the US stock market. On the one hand, a myriad of future investment opportunities presented themselves in respective industries including renewable energy, infrastructure and healthcare. However, higher tax rates cast a shadow over a potential bonanza in the future. The private real estate sector is likely to bear the brunt of the increase in tax (in the form of capital gains), this is a result of Biden’s plan to dissolve the 1031 exchange. The 1031 exchange is a loophole that can be used to defer capital gains tax when swapping two properties for business/investment. If the President’s plan goes ahead, real estate investors could see their tax burdens skyrocket.
First and foremost, Biden has been vocal about his plans regarding environmentalism and sustainability. He is a strong advocate of the Green New Deal as he believes that it is a, “crucial framework for meeting the climate challenges we face.“ The Green New Deal is a congressional plan that details a plan for tackling climate change, its main goal is to bring US greenhouse gas emissions down to zero. In addition, the deal plans to meet 100% of power demand in America through renewable and clean energy sources by 2030.The other key objectives of the scheme are as follows: cleaning up hazardous waste, restoring ecosystems through land preservation and building smart power grids that provide affordable electricity.
Armed with the information provided in the previous paragraph, investors should focus their attention onto Brookfield Renewable Partners LP. BRP is a publicly traded partnership that owns a portfolio of wind, solar and hydroelectric green-energy properties. The partnership has a track record of delivering good returns and mid-size dividends (4%). Since the company’s IPO on the 5th of December 2003 the price of a share has steadily risen from $5.59 to $41.14 (December 2020). BRP’s success in the first decade was due to its hydroelectric power production. However, it has switched most of its operations to wind and solar energy production because these technologies are more cost effective and have become appealing. It also has excellent future growth prospects, acquiring Terraform Power last year to propel its wind and solar businesses, as well as owning half of the Spanish solar developer company X-Elio. These impressive acquisitions and investments have amassed BRP with a capacity of 19,000 MW which is significantly larger than rival renewable energy companies Cypress Creak and Eco plexus who have a capacity of 14,000MW and 9000 MW respectively. Making Brookfield Renewable one of the biggest independent renewable-energy producers in the world. Consequently, Brookfield is a potential investment as the demand for renewable energy is inevitably going to rise during Biden’s presidency.
Increased Government spending on Infrastructure is part of Biden’s $2 trillion climate plan (Green New Deal).He is set to make an approximate investment of $300 billion on building more sustainable infrastructure. This will involve rebuilding roads and bridges, water systems and transportation systems. This opens up an investment opportunity in the renowned construction company Caterpillar. Caterpillar is a world leader in construction and mining equipment. The company also has operations in diesel gas engines, industrial gas turbines and diesel-electric locomotives.
Despite Caterpillar’s world presence, its stock trading in the last few years has been quite disappointing. The stock had been trading at roughly $150-$140 . However, after March 2020 the stock started to climb up and was able to break its 3 year high of $150 and propel to $181.This shows investors that Caterpillar has potential as it was able to break out of its long term trading average. However, Caterpillar is a risky bet, for the past few years the earnings and sales figures of the company have been quite weak. Despite this Caterpillar have been able to maintain a positive balance in their income statement. An income statement is a financial document that records a company’s revenue and expenses over a period of time. Usually, the income statement of a company gives investors an indication of whether or not the stock is worth investing in. Luckily, Caterpillar’s income statement is positive which encourages investors to invest into the stock.
The POTUS has assured the US public that he will provide a “Medicare-like” government option for healthcare and he plans to make private sector healthcare more affordable. This sets up the platform for medical insurers like UnitedHealth Group. United Healthcare specializes in Medicare supplemental plans. If Biden is successful in his endeavour of providing a Medicare solution for citizens, demand for supplemental plans will surge. Furthermore, Healthcare is a necessity so the demand is likely to be relatively inelastic so there will always be some consumer expenditure on these plans regardless of the price.
UHG was taken public in 1984 at a meagre sum of $0.14, currently the stock is trading at $339.67.UHG saw large volatile growth from 2009-2019 from $25-$245, this shows promising growth prospects for the company. Furthermore, UH is the largest US healthcare provider and has a market cap of $328.8,this figure is 4 times higher than its top competitor. A market cap is the total value of a company on the stock market which is determined by calculating (the shares that are owned by investors * current share price). Thereby, the healthcare group seems to be a worthwhile investment in a bullish Biden market. A bullish market is a period of rising prices in the stock market.
In conclusion, Biden’s presidency presents a variety of lucrative opportunities for growth investors. However, investors will have to invest their capital with a long-term mindset as they will only be able to benefit from large returns in the long run. Specifically, in Industries such as Infrastructure and renewable energy because deals and contracts take extended periods of time to be signed and completed.
