With the infrastructure bill moving through the Senate, we wanted to touch on those sub-sectors that may benefit and which are currently exhibiting high relative strength.
Beginning this week, the U.S. Senate has started discussions about the infrastructure bill (for full details on the bill, click here). While many have said it’s been a slow slog, many articles note the bipartisan support that the bill is receiving within the U.S. Senate (Source: Reuters). While the bill has yet to pass, we thought we’d begin a discussion on how investors could seek to play the bill and touch on those sectors and sub-sectors that may benefit or be impacted. Additionally, we will note which of these sub-sectors are currently exhibiting high relative strength and how users are able to utilize the DWA Security Screener in culling out high RS actionable stocks within these sub-sectors.
The image below shows the current rank of the sub-sectors that may be impacted most by the infrastructure bill within the DWA Sub-Sector Matrix. The DWA Sub-Sector matrix has 96 representatives within it and the table displays the rank of our select sub-sectors as of the close on August 3rd. Bear in mind that the infrastructure bill has not been passed and that the potential list of sub-sectors that may be impacted is very broad. The sub-sectors shown below are by no means the final list as by the time the bill is passed, the list could either be more or less than those shown. The degree to what sub-sectors may be impacted most is also possible to change as well, our goal was to simply cast a broad net and see what sub-sectors currently show high RS and those that don’t. The table is also organized by rank and divided by those that rank in the top half of the sub-sector matrix (in green) and those that rank in the bottom half of the matrix (in red).
In examining the sub-sector matrix, leadership currently lies within those sub-sectors that lie generally within the Industrials and Basic Materials broad economic sectors. This isn’t too surprising as these two broad sectors, and their subsequent sub-sectors, seem to be the ones to potentially benefit most from the infrastructure bill due to the focus on constructing new roads, bridges, and transportation thoroughfares, and both broad sectors have ranked within the upper half of the DALI sector rankings for much of this year. The remaining points of the current bill seeks to expand broadband access the rural areas, provide better access and incentives for electric car manufacturers, and improving the water quality along with reducing pollution. The bottom half of the sub-sector matrix ranking is where we currently find those sub-sectors related to communication improvements, water improvement, and pollution reduction. We may see some of these groups improve in relative strength and potentially climb the sub-sector rankings, but until the bill’s passage, we don’t know if that will come to fruition. As noted above, this is by no means the final list of sub-sectors that may benefit from the infrastructure bill, but it is a starting point. As we’ll discuss below, having these sectors as a starting point is a great way to look for potential stock ideas.
Within the DWA Security Screener, we can use the aforementioned sub-sectors discussed as the starting universe for a stocks query. This process can also be used to search for ideas within the broad economic sectors, DWA sectors, and even the sector indicators as well. To find the tool, click Security Selection, then Security Screener followed by Run Stocks Query. Once the query page has loaded, locate the blue universe box at the top of the page and find the Economic Sectors header near the bottom left of the blue box. After clicking the Click here to toggle sectors link, the universe box will expand and display all the broad sectors, DWA sectors, sub-sectors, and mini-sectors available on the platform. Select the desired sectors that would be the starting universe (in our example shown we have selected Heavy construction and Heavy Machinery) and then add the remainder of the technical criteria (technical attributes, positive trend, etc.) in the boxes below. Bear in mind, that the broad economic and DWA sectors that coincide with the sub-sector or mini sector will be checked off automatically, but the universe will focus on the group(s) of stocks from the lowest level selected. If you have any questions on what further criteria to use or how to utilize the tool, feel free to call the NDW team at (804) 320-8511. Additionally, stay tuned later this week as we discuss some potential stock plays based on the infrastructure bill.
