The U.S. election could bring about a surge in infrastructure spending. Here's how to play it

Published Mon, Nov 2 20207:12 AM ESTUpdated Mon, Nov 2 20208:11 AM EST

Jesse Pound @/in/jesse-pound @jesserpound

( CNBC Pro is looking at the most important investing angles surrounding the election. For the complete investor's guide, see here .) Tuesday's election could usher in a new era for the U.S. infrastructure industry, boosting stocks as varied as new-age energy plays and historic construction companies. The combination of a dwindling highway trust fund, high unemployment and Democrats' desire for more green energy initiatives has created an expectation of large-scale government spending. Investment firm Jefferies, for example, said in October that the chances for increased federal spending on infrastructure were "the brightest in recent memory." Democrat Joe Biden's infrastructure plan, as outlined on his website and the campaign trail, is wrapped together with green energy initiatives in a $2 trillion package. It calls for spending on roads, bridges, transit and the electric grid, among other things. Goldman Sachs said in an Oct. 19 note that it expected the plan to result in "a few hundred billion dollars" of infrastructure spending over Biden's term, with additional money and tax credits for green energy projects. President Donald Trump, meanwhile, has repeatedly floated the idea of a major infrastructure plan during his tenure, with proposals coming from the GOP-controlled Senate and the Democratic House, but no deal has come to fruition. A "blue wave" scenario, in which Biden begins his term with his party controlling both houses of Congress, is largely seen as the best outcome for infrastructure stocks. UBS said in an Oct. 26 note listed machinery, chemicals and electrical equipment among the sectors set to benefit in a blue wave situation. It said some of this Democratic spending was already priced in to stocks. "Under this scenario, we would see a wide array of winners as it would impact not only infrastructure, but green energy initiatives as well. Biden's announced plan is an ambitious USD 2 trillion climate and infrastructure plan that dramatically accelerates prior proposals. However, anything short of this outcome would be negative for the exposed stocks given their outperformance in recent months," UBS said. The firm said a Trump win would be the "most negative" outcome for the space, but still expected more infrastructure spending in that scenario. Even though a blue-wave scenario is seen as a strong possibility, there is plenty of upside remaining in the infrastructure stocks, said John Porter, head of equity at Mellon. "When you read the plans that are being proposed, there are some really impressive, really significant plans being proposed that are far from fully discounted in equity prices," Porter said. A Democratic-sweep would not be all good news for these sectors, as they would bring the potential for tighter regulations and higher taxes. Still, the benefits outweigh the downsides, said Stanley Elliott, an analyst at Stifel. He listed Caterpillar , Vulcan Materials and Martin Marietta Materials as construction-related stocks that should benefit from an infrastructure push. "We do see a risk that there will be a tighter regulatory environment to some extent, but our feeling is that, talking to people in the space, whatever higher regulatory environment will be offset by more dollars coming in," Elliott said. One space where a resounding Biden win could prove tricky is utilities, as a push for green energy could counteract infrastructure spending. Sophie Karp, an equity research analyst at KeyBanc Capital Markets, said investors should look for utility companies that already have aging plants powered by coal or similar nonrenewable sources as potential beneficiaries from a green energy push. "If the push directionally is going to be toward more renewable generation, if the government is going to some form or shape either mandate it or heavily incentivize it, that makes it easier for them to retire the near-the-end-of-the-line plants and deploy more capital to development," Karp said. "It's always this push-pull when you want to invest more in infrastructure but you also want to keep the rates low." Some utility companies also have exposure to more green energy sources that could become a bigger part of their business. Karp named Duke Energy and American Electric Power as two names with that upside. In its October note, Jefferies had its sector analysts pick stocks that could benefit from a surge infrastructure spending. Some of the buy-rated names chosen include Trinseo and Cabot in the chemicals space and Calix for its rural telecom exposure.

A contractor works on highway construction near Portsmouth, Ohio.

Ty Wright | Bloomberg | Getty Images

(CNBC Pro is looking at the most important investing angles surrounding the election. For the complete investor's guide, see here.)

Tuesday's election could usher in a new era for the U.S. infrastructure industry, boosting stocks as varied as new-age energy plays and historic construction companies.

The combination of a dwindling highway trust fund, high unemployment and Democrats' desire for more green energy initiatives has created an expectation of large-scale government spending. Investment firm Jefferies, for example, said in October that the chances for increased federal spending on infrastructure were "the brightest in recent memory."

Democrat Joe Biden's infrastructure plan, as outlined on his website and the campaign trail, is wrapped together with green energy initiatives in a $2 trillion package. It calls for spending on roads, bridges, transit and the electric grid, among other things. Goldman Sachs said in an Oct. 19 note that it expected the plan to result in "a few hundred billion dollars" of infrastructure spending over Biden's term, with additional money and tax credits for green energy projects.

President Donald Trump, meanwhile, has repeatedly floated the idea of a major infrastructure plan during his tenure, with proposals coming from the GOP-controlled Senate and the Democratic House, but no deal has come to fruition.