Infrastructure and tax plan takes center stage President Biden laid out a $2trn+ spending plan on Wed focused on infrastructure, R&D, broadband and clean energy - funded by higher corporate taxes. The S&P 500 was up 0.4%. However, industrials underperformed (-0.7%) suggesting the market may have been anticipating more than the $1trn allocated to infrastructure & construction. Semi's (+2.2%) and auto's (+3.3%) outperformed with targeted funding towards tech and EVs. With the issues still so fluid, we lay out our frameworks for assessing the impacts.

Screening for spending themes, using a data-driven approach To identify potential beneficiaries of Biden's spending plan, we screen ~200 stocks with exposure to infrastructure, clean energy and broadband and digital. Our approach uses various data sources: product and geo revenue exposure, gov't contracts, UBS Evidence Lab Deep Theme Explorer and sensitivity to infra. news. We refine the list further by weighting these metrics and valuation. To request the full stock list and data click here.

- What's priced? Valuations of infrastructure and broadband/digital stocks on 2y fwd EV/sales are in line with 5y averages vs a 15%+ premium for infrastructure in 2017 on Trump hope and 15%+ for broadband/digital in 2019. Clean energy on the other hand looks expensive at 30% above avg. Within sub-groupings, solar and wind power looks rich (EV/Sales +103% since 2020 vs market), so does construction & engineering (+18%). Utility grids (-14%) and infrastructure towers (-11%) look cheaper.

- Sustained spend key for valuations. Only ~18% of a stock's value is derived in the initial 8yr period of the plan using our DDM framework. We estimate that traditional infrastructure stocks could see 9%+ upside if 50%+ of Biden's infrastructure package is sustained, which is plausible. A subsequent lowering of the ERP on a more certain income stream could boost this further.

- Spending well below trend. Gov't infrastructure spending has been ~0.3% of GDP lower than avg since the GFC, resulting in ~$500bn of underinvestment. Thus, going back to trend eventually would mean a large part of the bump would be sustained.