As a continuation of that discussion, we review in this context the holdings of the American Resilience portfolio that are either direct energy sector positions or closely linked to energy markets.
Air Products & Chemicals (APD)
As one of a handful of companies in the world that can develop large-scale industrial gas projects, APD stands to benefit from either policy trajectory. Its core industrial gas business would see increased demand if we have more oil and gas projects in the United States. But APD is also emerging as a global leader in "green hydrogen,” which uses renewable energy sources to produce hydrogen that can be used as a fuel for transportation and other purposes.
Most of APD’s green hydrogen projects are located outside the United States, which suggests the U.S. President will have less impact on them. Overall, we view APD as having a well-balanced portfolio that could fare well if there is a policy shift in either direction.
Union Pacific (UNP)
As a leading railroad operator in the U.S., UNP is also nicely hedged to either policy outcome. Under a Trump administration, UNP would likely benefit from a pick-up in industrial activity related to energy investments, especially given its extensive rail network in key energy states like Texas and Louisiana. If a Harris administration translates into higher oil prices, this competitively advantages rail operators relative to trucking as diesel costs rise.
Vulcan Materials (VMC)
As the leading supplier of construction aggregates in sunbelt states, VMC stands to benefit considerably from any accelerated investment or industrial activity that would be stimulated by Trump policies. And similar to UNP, VMC tends to benefit from higher diesel prices.
As we have previously discussed, one of the most important business model characteristics of VMC is that higher trucking costs give the company greater local pricing power. We recall that VMC aggregates pricing advanced very sharply during the housing bubble time frame (2005-2008), when diesel prices soared, even as volumes declined. Historically, aggregates price hikes tend to stick and rarely reverse once implemented.
As the market leader in a relatively small industry with uniquely attractive pricing economics, we expect VMC to perform well regardless of who wins in November, although a Trump-driven uptick of investment in oil and gas states could be quite positive.
Williams (WMB)
Williams owns and operates key pieces of the U.S. natural gas infrastructure. Because of growing demand for electricity, growth limitations on intermittent renewable power sources like wind and solar, and hostility to coal and nuclear, natural gas is well-positioned for the long-term.
Harris’ policies could promote more Electric Vehicle (EV) use, which would potentially translate into even stronger electricity demand. On the other hand, Trump’s commitment to developing domestic oil and gas production, including Liquefied Natural Gas (LNG), would be quite favorable for WMB. WMB stands to benefit from more volumes flowing through its existing infrastructure assets as well as high return investment opportunities related to new projects that are adjacent to its pipeline network.
On balance, WMB investors likely stand to benefit more from a Trump victory. Either way, WMB shareholders own an irreplaceable natural gas pipeline network that will benefit from the long-term electrification trend.
