Infrastructure talks are faltering but these stocks can still benefit from the Biden plan, Citi says

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U.S. stocks look set to move higher on Monday after the S&P 500
SPX,
+0.19%
notched its 28th record high of the year on Friday, with inflation fears appearing to ease.

President Biden’s infrastructure plans are also in focus after talks with Senate Republicans over a $1.7 trillion deal collapsed last week. Bipartisan efforts over a compromise are continuing, while a Democratic-only Reconciliation Bill is also seen as an option. Biden has set a summer deadline for Congress to pass his top legislative priority.

In our call of the day, Citi strategists looked at the prospects for Biden’s infrastructure plans and the stocks that are likely to benefit.

The strategists, led by Edward Morse, said it now looked likely that passable legislation would be below $1.7 trillion of infrastructure but higher than $1 trillion. The team looked at which areas would still make the cut in terms of spending.

“Enhanced policy support for carbon capture, utilization and storage (CCUS) likely survives and would have bipartisan support if a reconciliation process fails,” they said.

CCUS involves capturing carbon dioxide from large sources, such as power plants, and storing it to be recycled. It can play an “important and diverse” role in meeting global energy and climate goals, according to the International Energy Agency. 

“The bill could jump-start an industry that could grow to be larger than today’s domestic oil-and-gas industry,” Citi strategists said. That would change the terminal value debate over companies like ExxonMobil
XOM,
-0.92%,
which has more than 30 years of experience in CCUS, and other established names in the space, including Baker Hughes
BKR,
+1.57%,
Schlumberger
SLB,
-0.14%,
Chart Industries
GTLS,
+3.36%,
Valero Energy
VLO,
-0.79%
and Kinder Morgan
KMI,
+0.74%,
they added.

Renewables adoption is also poised to accelerate, they said, with the demand for clean energy boosted by Biden’s agenda on climate change. It could potentially lead to significant investments in existing renewable facilities and building new solar and wind farms.

“We think this bodes well for specialty contractors, such as MasTec
MTZ,
-0.43%
and engineering and construction-focused Fluor
FLR,
-0.16%
given their expertise in clean energy infrastructure and management, as well as for General Electric
GE,
+0.44%
given its wind turbine portfolio and related digital offerings,” they said. 

Two other long-term themes to watch out for are electric vehicle infrastructure and green hydrogen, which is produced when renewable energy powers the electrolysis of water — breaking it into its component elements of hydrogen and oxygen.

MasTec, Rockwell Automation
ROK,
+0.88%,
3M
MMM,
-0.16%,
Vontier
VNT,
-0.74%
and Dover Corp
DOV,
+0.98%
are all set to benefit from EV proliferation, while General Electric, Emerson Electric
EMR,
-0.57%
and KBR
KBR,
+2.02%
can capitalize on the emergence of green hydrogen, they added.

The markets

European stocks climbed to fresh record highs on Monday as inflation fears continued to ease. U.S. stock futures
YM00,
+0.01%

ES00,
+0.09%

NQ00,
+0.35%
also pointed higher ahead of the open after the S&P 500
SPX,
+0.19%
closed at a record high on Friday, its 28th new milestone this year. The yield on the 10-year Treasury
TMUBMUSD10Y,
1.465%
remained anchored below 1.50%.

The Tweet

Bitcoin
BTCUSD,
+1.33%
jumped sharply on Sunday after Elon Musk said Tesla “only” sold around 10% of its holdings and would resume allowing transactions using the cryptocurrency when 50% of energy used to mine it comes from clean sources. Bitcoin was trading at $39,507.35 early on Friday and has climbed 11.7% in the past 24 hours, according to CoinDesk.

The buzz

Royal Dutch Shell
RDSB,
+2.19%
is reviewing its holdings in the largest oil field in the U.S. — the Permian Basin, mostly in Texas — according to reports on Sunday. A salad could raise up to $10 billion, CNBC said.

British Prime Minister Boris Johnson is expected to confirm a four-week delay to the next planned relaxation of COVID-19 restrictions in England due to the spread of the delta variant.

Leaders of the G7 (Group of Seven) countries rallied around President Biden’s call to challenge China over human rights and also vowed to donate one billion COVID-19 vaccine doses to poorer nations over the next year.

Random reads

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Disruption to shipping could delay Christmas orders

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