Morningstar - Q3 2021 - 55

who are employed in this industry. We do not
cover companies in this subsector, but if
hospital chains such as HCA Healthcare HCA and
Tenet Healthcare THC are able to increase
the at-home care aspects of their business, either
organically or more likely through acquisitions,
they could benefit over the longer term.
Among the managed-care organizations, 4-starrated
Centene CNC is the largest provider
of Medicaid plans and most concentrated in
Medicaid of the six insurers we cover. Medicaid
is the primary payer of nursing facility services.
Of the other MCOs, Humana's HUM current
at-home business is quite small relative to the rest
of its business, and while that segment may
benefit, it is unlikely to move the needle on our
company valuation. Staffing providers such
as AMN Healthcare Services AMN could see a
greater demand for their services.
The healthcare initiatives also include $30
billion for new investments in biopreparedness
and biosecurity. This includes funding for:
gPersonal protective equipment Shoring up
the nation's strategic national stockpile of personal
protective equipment would benefit healthcare
supply manufacturers such as 3M MMM
and Becton Dickinson BDX but is unlikely to have
a material impact on our company valuations.
gResearch and development on new vaccines
The firms that have been successful in producing
vaccines for the novel coronavirus thus far
would be likely candidates. However, considering
the size and diversification of these firms, any
additional revenue from this initiative would not
result in changes to our valuation.
gUpgrading research infrastructure in laboratories
across the country This will boost sales of
laboratory equipment manufacturers.
Between the expansion of long-term-care
infrastructure, biopreparedness, and the
R&D initiatives, companies that make testing
systems and supplies, such as Bio-Rad
Laboratories BIO, Bio-Techne TECH, and Thermo
Fisher Scientific TMO, could see an increase
in demand for their products. Thermo Fisher
represents more than one fourth of the life
sciences market, and any incremental investments
in R&D will benefit it. Given its size, though,
we think the magnitude of a valuation increase
for these companies would be modest.
Other medical suppliers in the life sciences,
such as Steris STE and West Pharmaceutical
Services WST, could also benefit. Finally,
Illumina ILMN, which provides tools and services
to analyze genetic material, could see an uptick
in demand from R&D.
4. Revitalizing Chip Manufacturing in U.S. Will
Require Investment in New Equipment
The overall framework also pushes incentives
for corporations to revitalize American
manufacturing, especially in those areas deemed
to be of national interest: for instance,
$50 billion in tax credits for manufacturing
semiconductors in the U.S.
While Intel INTC is too large for this initiative
to affect our fair value estimate for its stock,
equipment makers such as Applied Materials
AMAT, KLA KLAC, and Lam Research LRCX
could see additional demand for their products.
We note that there is a several-year lag between
when semiconductor manufacturers begin
to build new facilities and when the equipment
manufacturers would realize the sales to these
new facilities.
Conclusion
With stocks trading near their all-time highs,
undervalued stocks have become increasingly
scarce. With many traditional infrastructure
companies already at or above fair value, investors
will need to be especially adroit in choosing
those that they invest in to benefit from the
heightened infrastructure spending to come. In our
view, of the few undervalued opportunities
that remain in the marketplace, more can be found
in the sectors that would be bolstered
by nontraditional infrastructure spending. K
David Sekera, CFA, is chief U.S. market strategist with
Morningstar Research Services LLC.
EXHIBIT 3
Electric Boost We forecast that sales of electric vehicles and hybrids will reach
67% of all new-car sales by 2030.
Number of
Vehicles Sold
80M
60
40
30
20
Source: Morningstar.
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
morningstar.com/lp/magazine
55
20
Hybrid
EV
PROJECTION
EV and Hybrid
EV Percentage of Sales
80
67
60
40
https://www.morningstar.com/authors/1514/david-sekera http://www.morningstar.com/lp/magazine
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