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Potential ASX winners from government’s $1.5bn manufacturing blueprint

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The federal government is set to announce a $1.5 billion plan and list six key sectors that will shape Australia’s manufacturing future.

The Australia Financial Review listed that the six priority areas that will receive the most government support. These are resources and critical minerals, food and beverages, medical products, recycling and clean energy, defence and space.

The $1.5 billion investment may not sound like much, but it’s only a start. The Morrison government is likely to provide further funding and other incentives to grow these sectors over the next decade.

This means there are a number of ASX stocks on the S&P/ASX 200 Index (Index:^AXJO) that could get a boost from the latest initiative.

ASX stocks in the winners’ circle

The plan was forged amid the COVID-19 economic firestorm. Prime Minister Scott Morrison defended picking these winners as he believes the Australia holds a competitive global advantage in these six key areas.

“The reality is we cannot and should not seek to reach global scale in a large number of sectors,” the AFR quoted the PM’s speech that will be delivered this afternoon.

“This is an important lesson from other small and medium-sized high-income economies which have leveraged home-grown manufacturing into global success, such as Singapore, the UK, Germany and Canada.”

Longer-term boost for these ASX shares

We are unlikely to see an immediate share price reaction to stocks that are well entrenched in the six priority sectors. But I believe they will see benefits starting to flow through over the coming months.

One stock that I think is set to rise with the manufacturing tide is the Austal Limited (ASX: ASB). This is one of my favourite stocks for FY21 and the manufacturing blueprint only reinforces my bullish view on the shipbuilder.

Importantly, Austal is also benefiting from US government stimulus as the Trump Administration looks to beef up its defence capabilities. Austal is getting both sides of its bread buttered.

ASX stock with high strategic value

Another stock that’s riding this wave is the Lynas Corporation Ltd (ASX: LYC) share price. I can’t help but feel the Morrison government is specifically singling out the rare earths miner under the “critical minerals” category.

The US and other Western countries are trying to break their dependence on China for the supply of these critical minerals. It’s hard to see how Lynas won’t play a part in this tectonic shift.

Biggest winners are at the smaller end

Biotech and medical device companies are another obvious ASX group in the manufacturing spotlight.

But before you get too excited about the CSL Limited (ASX: CSL) share price and Resmed CDI (ASX: RMD) share price, it’s the smaller players that will benefit more from government incentives.

In that respect, I think it’s stocks like Starpharma Holdings Limited (ASX: SPL) that will enjoy a more material uplift than the industry giants.

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Brendon Lau owns shares of Austal Limited, CSL Ltd., and Lynas Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Austal Limited, CSL Ltd., and Starpharma Holdings Limited. The Motley Fool Australia has recommended ResMed Inc. and Starpharma Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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