Top Stocks to Buy, Inflation Reduction Act Props Up Certain Investments

Now that the Inflation Reduction Act of 2022 has passed, certain investments (including green tech and infrastructure) seek to benefit.

Rachel Curry - Author

Aug. 10 2022, Published 11:28 a.m. ET

Now that the Inflation Reduction Act of 2022 has passed, the spending measures within the legislation are preparing to go into effect. The bill targets climate change and Medicare negotiations, which could boost green infrastructure companies while stifling big pharma.

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What stocks should you look at as the Inflation Reduction Act props up green investments? Here’s a rundown (plus what to avoid as the legislation goes into effect).

Solar stocks like Sunrun and SolarEdge are a good bet.

Sunrun (RUN) is up 5.34 percent since the legislation passed over the weekend until mid-morning on Aug. 10. With a 39.35-percent gain over the past month, Sunrun shows promise — but it remains fundamentally speculative. The stock is still 64 percent from its peak, but RUN stock could reach recovery given upcoming renewable energy infrastructure investments in the U.S. As the solar industry escapes an ordered freeze due to sanction investigations, solar stocks could see even more improvement.

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SolarEdge (SEDG) is up just 1.59 percent since the bill passed but boasts 14.55-percent one-month returns. SolarEdge doesn't have the same volatility as Sunrun and could be a more fundamentally sound investment. Institutional shareholders like Russell Investments Group and CIBC Asset Management are bullish on SEDG.

EV and charging stocks like Tesla, ChargePoint, and Plug Power make the list.

Electric vehicle and EV charging stocks receive special treatment from the legislation, which expands the federal EV tax credit to include more new and even used EVs. The logistics for which EVs are eligible is tight (it includes price and income restrictions), but stocks in the sector are still likely to benefit.

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Tesla (TSLA) is now eligible for the EV subsidy again despite exceeding the previous cap on sold vehicles. TSLA stock could benefit if it can get out from other issues, like CEO Elon Musk’s Twitter battle that’s causing him to sell a TSLA stake worth billions of dollars.

As EV charging infrastructure expands, companies like ChargePoint (CHPT), up 37.77 percent for the month despite a -17.21 percent YTD hit, and Plug Power (PLUG), up 16.05 percent overnight on analyst target price lifts despite sitting at -0.56 percent YTD, are poised to benefit.

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Renewable energy and storage companies like Albemarle and NextEra Energy should benefit.

Albemarle (ALB) could benefit from the increased need for energy storage due to its production of crucial EV and renewable energy materials lithium and bromine. ALB is up 6.5 percent from the weekend and a steady 7.10 percent YTD.

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NextEra Energy (NEE) isn’t a renewable pure play, but it's one of the world’s leading solar energy operators. According to the company, 98 percent of the power its facilities produced in 2020 came from a “diverse mix of clean or renewable sources.” NEE stock is up 11.28 percent for the month but still down -2.05 percent YTD.

What stocks should you avoid?

While you’re adding stocks to your watchlist, remember that the Inflation Reduction Act targets stock buybacks and Medicare negotiations. This means two things:

    1. Big buyback beasts like Apple (AAPL), Alphabet (GOOGL), Meta Platforms (META), Microsoft (MSFT), and Bank of America (BAC) could suffer. The 1 percent excise tax on stock buybacks starting in January 2023 could impact the companies buying back the most shares by dollar value. However, this impact could be marginal.
    2. Big pharma may see a hit due to the legislation’s new healthcare rules. As part of the bill, Medicare can now negotiate prescription prices with drug makers like Johnson & Johnson (JNJ), Eli Lilly (LLY), AstraZeneca (AZN), and more, which could increase industry competition and reduce revenues.
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