What the Start of the CHIPs Act Means for Several AAP Names

* Here's why we added Waste Management shares to the portfolio and boosted several other price targets

* The start of CHIPs Act spending adds another layer for 2024-2025 nonresidential construction

* Other eventual nonresidential spending drivers include Biden's passenger rail and EV charging station programs

Earlier today we called up the shares of Waste Management (WM) to the portfolio from the Bullpen and boosted our respective price targets for Action Alerts PLUS names United Rentals (URI) , Vulcan Materials (VMC) and Applied Materials (AMAT) .

In the trade, we shared those actions had a common catalyst - the start of funds flowing for the CHIPs Act and to a lesser extent a high-profile chip announcement by New York State. We've been waiting for spending tied to the CHIPs Act to begin and this morning's announcement signals that has begun.

With the 2024 presidential election poised to move into a higher gear, we would not be surprised to see a series of other CHIPs Act announcements and others tied to Biden's infrastructure and re-shoring programs. These would all be positives for our AMAT, URI, VMC and WM shares, and to a lesser extend our shares of Deere (DE) .

New York State's Chip News and the Start of the CHIPs Act

What all four shares have in common is the announcement New York State is joining chip companies to invest $10 billion in a semiconductor research facility at the University at Albany. Collaborating partners include IBM (IBM) , Micron Technology (MU) , Tokyo Electron (TOELY) , and Applied Materials. The state would invest $1 billion with plans to draw $9 billion in additional investment from chip companies. We'd note Global Foundries (GFS) is headquartered in Malta, New York, not too far from Albany and IBM has had a research presence in the area.

Also today, the US Commerce Department officials said Monday that BAE Systems (BAESY) in New Hampshire will receive the first grant under the manufacturing portion of the CHIPS Act. The company is expected to receive a $35 million grant to quadruple its domestic production of a type of chip used in F-15 and F-35 fighter jets. This tells us we should start seeing more awards associated with the $39 billion CHIPSs Act, but supply constraints at portfolio-holding Lockheed Martin (LMT) should improve as well.

As impressive as the action by New York State, it's the flow of funds for the CHIPs Act that is the larger catalyst for our AMAT shares. Paired with President Biden's announcement last week for $8.2 billion in funding for passenger rail projects, it sure sounds like he's getting ready for the upcoming 2024 presidential election. From our perspective, it means we should see more catalysts for our AMAT shares in the coming months as well as further growth in non-residential construction, positives for our URI, VMC, and to a lesser extent our Deere shares. To be clear, we do not expect to see any immediate benefit from the passenger rail announcement because these things take time to work through the system.

One other catalyst we continue to wait for is the start of building for Biden's nationwide EV charging network. The timing on that has been disappointing but our thinking as we approach 2024 is it's a matter of time. That said, we are not baking any meaningful expectations into our expectations, which leaves it as potential upside should that flow start sooner than expected.

Why We Called Waste Management Shares Up From the Bullpen

As we think about this upswing in construction activity and the incremental waste it will create, we called WM shares from the Bullpen. When we added the shares to the Bullpen, we noted Waste Management should realize big productivity improvements in 2024 and we like the sticky nature of its residential business as well as its ability to drive pricing.

We also shared we would adjust our thinking as the economic picture for 2024 became clearer. Next year will see more nonresidential construction activity because of the Biden Infrastructure Law, but now we can finally factor that activity for the CHIPs Act. Our comments on Biden's passenger rail project and EV charging station network apply to WM shares as well and should be drivers of even greater commercial and construction waste volumes when they eventually kick in.

With the addition of WM shares to the portfolio, we would remind you winter weather can delay construction and commercial activity and have an impact on United Rentals, Vulcan Materials, and Waste Management. We recognize this, especially given how close we are to that type of weather rearing its head, but our focus will be on the larger opportunities as the overall volume of nonresidential construction grows. A pick-up in the housing market construction would be another sweetener for our URI, VMC, DE, and WM shares in 2024.

Our price target on WM shares is $195 and our initial panic point is set at $150. We see support for WM shares between $160-$164, and if the shares pulled back to those levels we would look to add to our holdings, and we may revisit our initial Two rating.

Action Alerts PLUS is long WM, URI, VMC, AMAT, DE, LMT.