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Tech Stocks for the Stimulus Plan

Companies benefiting from Obama's massive proposed spending may include broadband, infrastructure, and environmental outfits

As businesses hunker down for another year of malaise, a few sectors of the economy are poised to benefit from the incoming Administration's proposed elixir.

Short-term beneficiaries of President-elect Barack Obama's economic stimulus plan will probably include tech companies involved in a broadband expansion; engineering and construction companies that provide the services to repair the nation's physical infrastructure; and green energy and building materials companies, which could receive grants, incentives, and contracts under the proposal's energy-efficiency planks.

The Obama Administration hasn't detailed the plan aimed at restarting the stalled American economy, but the President-elect has said the goal is to create 2.5 million new jobs. Economists have said that the total spending could hit between $700 million and $1 trillion over two years. Obama's transition team hopes Congress will pass the coming bill shortly after it reconvenes in January. Obama and his advisers have laid out a few broad ideas, including proposals to rebuild roads and bridges, improve the power grid to cut carbon emissions, introduce more energy-efficient roofs and more accurate power meters for homes, and modernize the nation's health-care system with computerized medical records and other technology. The President-elect has also proposed spending new federal money for wiring schools and libraries for Internet access.

Tech Cheerleader

Companies that could benefit from the spending are seeing their stock prices rise. Shares of Intel (INTC) have risen 4% since Dec. 11 on anticipation the plan would boost government spending on information technology. Memory-chip maker Micron Technology's (MU) stock also got a lift last week from the news. "There's a common thread through Obama's policy positions: a strong recognition of the role that technology plays," says Don Whiteside, vice-president for global public policy at Intel.

It's not just tech that is benefiting. Shares of heavy equipment makers Caterpillar (CAT) and Deere (DE) and construction company Fluor (FLR) have posted sharp gains in the past month as investors expect them to reap new stimulus-related contracts. And companies involved with energy-efficient materials and renewable fuels are hoping for a burst of green jobs created as a result of new government spending.

To be sure, even companies that could benefit from the plan are hurting now. Intel and Cisco Systems (CSCO), supplying much of the equipment used to build data networks, recently issued dour forecasts. The U.S. economy is staggering toward the end of a yearlong recession that could last into 2009. Jobless claims recently rose to a 26-year high, and companies including AT&T (T), Citibank (C), and Dow Chemical (DOW) are laying off tens of thousands of workers.

One pillar of Obama's recovery plan is expanding speedy Internet access, which his advisers and many experts say can help improve economic growth. The U.S. trails many countries in Europe and Asia in broadband penetration and speed. Obama has proposed financing faster broadband for more areas of the country using the nation's Universal Service Fund, levied on phone companies by the government to provide telephone service to rural and poor areas. "Basic infrastructure 50 years ago was an interstate highway system," says Intel's Whiteside. "Basic infrastructure today includes broadband."

Uncle Sam an Unfair Rival?

The proposal is sure to be controversial. The companies that currently provide broadband Net service—AT&T, Verizon Communications (VZ), and T-Mobile (DT), among others—spend billions every year building the infrastructure to offer their services, and many think it's unfair for the government to get into business in competition with them. If the government offers Net services at low rates or for free, it could cut into their profits.

The incoming Administration also plans to spend on information technology to improve the country's health-care system by providing doctors with more up-to-date and accurate information on patients. "The No. 1 thing the [next] President needs to do for the technology sector is to focus on health-care information technology," says Marc Benioff, CEO of Web software maker (CRM), in an interview shortly before the Nov. 4 election. Undertaking such a program "can dramatically reduce the cost and complexity of the national health-care system," he says.

Companies with an interest in electronic medical record technology, including IBM (IBM) and Microsoft (MSFT), could also gain. Microsoft is marketing software that can help patients with chronic diseases such as hypertension track their conditions from home and has equipped hospitals in Wisconsin and elsewhere to track treatments across groups of patients. The company is watching proposed legislation that could give doctors and hospitals an incentive to share more patient data, says Peter Neupert, a corporate vice-president in Microsoft's health solutions group. Intel is also pushing for investment in computer technology that can monitor patients' vital signs from their homes, relaying information to doctors. The equipment could create a new market for silicon chips made by Intel and others. In addition, Intel is working with Wal-Mart (WMT) and other major companies on an effort to digitize health records.

Obama also has promised to boost funding for basic technology research as well as make permanent the government's research and development tax credit for companies, which could benefit a variety of tech outfits that spend heavily on R&D.

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