(Veteran tech analyst Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a free trial.)
Joe Biden arrived in Washington Wednesday with consensus-building rhetoric, a plan to tackle COVID-19 and a promise to build back the economy. Then he started rolling out policies.
Making investing sense of politicians is difficult in the best of times. Given the fractious nature of our current politics it’s even more perilous now. That said, a lot of what President Biden is proposing will have real ramifications on stock prices.
Here is a list of info-tech and industrial-tech stocks you should buy to take advantage of the new regime: McKesson, Magna International and Taiwan Semiconductor Manufacturing. Now I’ll explain why:
Before there can be any real progress with the economy the country must get past the global pandemic. Biden made COVID-19 his top priority and picking stock winners is likely to be low hanging fruit for investors.
McKesson (MCK) - Get Report is the kind of business that normally flies under the radar. The Irving, Tex.-based company is an operating system for healthcare, of sorts. It builds software and systems to route critical supplies between manufacturers and distribution centers like pharmacies, oncology clinics, hospitals and doctor’s offices.
This middleman business is surprisingly large. McKesson logged $231 billion in sales during 2020, up 7.8% from a year ago. Keep in mind, this growth came despite the pandemic that caused the cancellation of many elective procedures and doctor office visits.
Now McKesson managers are being asked to help clean up the pandemic. The company has been selected by the Center for Disease Control as the central distributor for refrigerated and frozen vaccines.
And McKesson is working with the Department of Health and Human Services to make sure healthcare providers have the syringes, alcohol, prep pads, face shields and other supplies they will need to vaccinate 100 of million of American across all 50 states. That’s a big win for shareholders, even if it is not yet reflected in share prices.
Assuming the pandemic comes under control the next part of President Biden’s agenda is infrastructure. Normally this would be positive for construction equipment companies, materials firms, and homebuilders. Take your pick of Caterpillar (CAT) - Get Report, Deere (DE) - Get Report, Vulcan Materials (VMC) - Get Report, and Lennar (LEN) - Get Report. All should perform well as the President talks about picks, shovels and the American dream of home ownership and healthy families.
Yet an even better investment angle might be the greening of industry.
Let’s be honest. The Biden administration has never veered from the big idea that renewable energy will provide of a font of good new jobs. There is some truth in it all. Tesla (TSLA) - Get Report vehicles are good for the environment and manufacturing them has created a lot of good new jobs that did not previously exist. It doesn’t hurt that the cars are fun to drive, too.
Now Detroit wants to do the same. Ford (F) - Get Report and General Motors (GM) - Get Report are racing to electrify their fleets with battery powered, new modular platforms. This is a big deal, and a larger investment theme that will create important new investment winners.
Magna International (MGA) - Get Report is a the world’s third-largest auto parts supplier. The Canadian company has grand designs to outfit the entire sector with modular electric motors, inverters and board on-board chargers, thanks to a joint venture signed last December with LG Electronics.
In addition its parts business, Magna inked a separate joint venture in 2019 with BAIC, a Chinese state-owned electric vehicle maker. The partnership began building complete EVs during 2020. Think of it as a white label EV business that is expected to produce 180,000 cars annually.
The key to that partnership, and the LG deal is being able to swap parts easily between vehicle types and models. This is possible because electrification means most of the basic components are generic. The same inverter should work equally as well on a Chevy Bolt as a Jaguar I-Pace.
Speaking of inversion, much of President Biden’s rhetoric surrounding rebuilding is really about upending globalism. This important part of his agenda should play out first in semiconductors.
Taiwan Semiconductor Manufacturing (TSM) - Get Report is the world’s largest contract microprocessor manufacturer and it is building a massive plant in Arizona. The company makes chips for Apple (AAPL) - Get Report, Nvidia (NVDA) - Get Report, Advanced Micro Devices (AMD) - Get Report, Qualcomm (QCOM) - Get Report and others.
TSM reported sales of fourth quarter sales of $12.7 billion, up 22% year-over-year. The net profit margin was 39.5%. The business is big, profitable, state-of-the-art and it is coming to the United States. Managers previously announced the company is spending about $11 billion to set up its new digs in Arizona.
It’s part of a bigger trend to move critical supply chains back to the United States. It’s also good business for TSM and its shareholders.
When President Biden talks about the pandemic, green energy and building the economy back better investors should take him at his word. These is a legitimate agenda that will impact stock prices going forward.
On Monday, we'll look at some tech stock losers of the new Administration.