With the executive and legislative branches both coming under Democratic control this month, it’s worth considering which sectors of the economy will benefit most. The TL;DR is that clean energy, industrial metals, and cannabis are all poised to gain market value under the Biden Administration.
1. Clean Energy
Americans across the political spectrum support the adoption of renewable energy technologies, with the distinction that Republicans’ support is driven by the potential economic benefits while Democrats are primarily concerned about climate change. The Biden Administration is committed to immediately rejoining the Paris Climate Accord and has tapped John Kerry for the newly-created position of Special Presidential Envoy for Climate. The Administration is also expected to implement a $2 trillion plan, known as Build Back Better, to invest in green infrastructure (and create jobs and spur economic growth simultaneously). And with the Democrats set to control both houses of Congress, the Biden Administration is well-positioned to advance the adoption of clean energy technologies.
Even under Trump, renewable energy technologies including solar & wind power and electric vehicles have been thriving. Regardless of the election results, the North American solar power sector is predicted through 2026 to grow at a 19 percent CAGR, driven by perpetually increasing demand and the emergence of highly efficient third-generation photovoltaic solar modules. The demand for wind power also continues to rise, as corporations are increasingly harnessing wind energy to meet their sustainability goals. Offshore wind is particularly promising, as its untapped power generation potential is nearly double the nation’s current electricity usage. Consumers’ transition to electric vehicles continues, too, boosted in part by the continually increasing supply of EV charging stations. Should the Biden Administration pursue increased fuel efficiency standards or loosen EV regulations, then the adoption of electric vehicles by U.S. drivers will likely continue to accelerate.
Investors have a few different options to gain exposure to this sector. The most obvious strategy is to purchase individual publicly-traded equities, with plenty of stocks from which to choose. Exchange-traded funds such as the Invesco WilderHill Clean Energy ETF (PBW), the First Trust NASDAQ Clean Edge Green Energy ETF (QCLN), and the VanEck Vectors Low Carbon Energy ETF (SMOG) offer more diversified exposure to the sector. Solar income funds such as the Bluefield Solar Income Fund provide opportunities to invest in unlisted portfolios of operational solar assets, while renewable energy mutual funds like the Fidelity Select Environment and Alternative Energy Portfolio are another way to gain exposure to the sector. In addition, most major power companies now offer “mini energy bonds,” which enable the environmentally conscious to invest only in power companies’ renewable energy divisions.
2. Industrial and Battery Metals
With the continuing adoption of renewable energy and the Biden Administration planning to sharply increase infrastructure spending, the market for industrial metals is likely to grow. Cobalt and lithium are needed to manufacture solar panels and electric vehicle batteries, while these and other metals—including copper, steel, aluminum, lead, and zinc—are core components of most major infrastructure projects. The Biden Administration spending $2 trillion on metals-rich green infrastructure is likely to spur private sector investment in similarly metals-intensive products and structures, namely renewable energy and electric vehicles, which will further boost the industrial metals market.
Industrial metals as a sector performed well throughout 2020. Forced shutdowns of mines and refineries due to the pandemic caused the supplies of many metals, particularly nickel, tin and zinc, to drop and market prices to rise accordingly. Demand for these metals is holding largely steady or rising, as China—the world’s leading buyer of industrial metals—recovered from the pandemic and resumed spending heavily on infrastructure and manufacturing. In addition, the supply of these metals remains limited, as developing countries are the primary producers and continue to be hindered by COVID-19. By 2027, the industrial metals sector is predicted to grow at a CAGR of 11 percent.
Investors can gain exposure to the industrial metals sectors by buying individual stocks of base metals companies. Investors may also purchase futures contracts for one or more metals. ETFs such as the Invesco DB Base Metal Fund (DBB), which is comprised of futures contracts for aluminum, zinc, and copper, offer exposure to an assortment of industrial metals. As zinc and lead in their naturally-occurring states are often found together, and frequently in conjunction with copper, too, the markets for each of these metals are highly correlated. Investors can improve the performances of their portfolios by carefully considering this three-way correlation when making trading decisions.
Cannabis is already legal in some form in a majority of U.S. states, and with Biden in office, further progress toward legalization is likely. While the Biden Administration probably will not push for total federal legalization for recreational use, the incoming President has indicated his support for the legalization of cannabis for medical use. Biden supports the decriminalization of the plant and its reclassification by the DEA from Schedule I, which is intended only for substances with no medicinal properties. Perhaps most significantly, the Biden Administration has indicated that it intends to reinstate a federal government policy, first introduced under the Obama Administration, of permitting states to enact their own cannabis laws. Such certainty that federal drug laws will not be applied to cannabis in states where it is legal creates space for the legal cannabis market to further flourish.
In the hours and days following the past few federal elections, a predictable headline can be found in the media—usually something like “The Big Winner of This Election? Drugs.” Cannabis, for both medical and recreational purposes, is becoming legal in progressively more states with every election. The 2020 election resulted in the legalization of cannabis for recreational use in Arizona, Montana, and New Jersey, while Mississippi legalized the plant for medical use. South Dakota voters legalized cannabis for both recreational and medical use. Cannabis is now legal for medical use in 36 states, one district, and four territories, and legal for recreational use in 15 states, one district, and three territories. Cannabis was the big winner in November, and will likely achieve even more state-level victories in the midterm election in 2022.
“The minute we saw an unexpected turn of events in Georgia, we decided it’s likely that regulations will move much quicker,” he told Yahoo Finance Live. “It really was there in order to prepare the company for what we think will be an acceleration of growth.”
– Curaleaf Exec Chairman Boris Jordan
Plenty of cannabis companies are publicly traded but, due to the federal illegality of the plant, investing in the sector is relatively complex. Cannabis has been legal nationwide in Canada since 2018, permitting U.S. cannabis companies wishing to go public to do so on a Canadian exchange. Canadian cannabis companies, operating legally, may list on U.S. exchanges. U.S. investors seeking access to the U.S. cannabis market may do so only via the OTC exchanges. Cannabis ETFs are plentiful on the Canadian exchanges, while only one U.S.-listed ETF—the AdvisorShares Pure US Cannabis ETF (MSOS)—provides exposure to only American cannabis companies. Canadian pot stocks are likely to continue to gain value, but the largest U.S. cannabis companies, known as Multi-State Operators, are likely to benefit the most under the Biden Administration.
At Nicoya Research, we have been generating significant profits in these sectors over the past few months and see much more upside ahead. In fact, in just the past 30 days, our copper/nickel stock pick is up more than 200% and our small-cap lithium stock pick is up over 100%. Our two top cannabis stock picks are up 329% and 250%, respectively, since adding last year. Click here to sign up for instant access to our portfolios, newsletters, trade alerts, and chat room!
Article by Nicoya Research contributor Allie Grace