It is reasonable to assume that once the 2016 election results were known, U.S. electorate divided into three groups. One quarter or so probably felt delirious, if for no other reason than Donald Trump’s victory mean that Hillary Clinton was defeated, regardless of the apparent character of the man that actually won.
Another quarter felt the opposite, a sense of dread of what was to come from a Trump Presidency, a dread based mainly on their own warnings to others about what a dystopian nightmare that would be rather than any hard facts. Another, far larger number probably felt relief that the whole thing was over and, whether Trump was their choice or not, the hope that, at the very least, he doesn’t mess things up too much.
If you are an investor, however, whichever camp you fall in you should put that aside, look at what a Trump Presidency will realistically mean, and invest accordingly.
History suggests that the third group actually has it right. The degree of influence of the President on matters economic is frequently exaggerated in people’s minds. Not messing it up too much is often their only priority, and rightly so. Trump has voiced many grand plans, but does anybody really think we will see bands of armed men going house to house to deport 11 million people? Do you think trade agreements that have stood for years will be ripped up on day one? Do you think that Trump has a magic wand that he can wave and bring back manufacturing jobs that have been lost as much to automation as to globalization?
No, the trick after an election is to look not at what a candidate said he or she will do, but at what a President can actually influence and change directly, and/or quickly. Even with Republicans in control of the House and Senate that applies. Those looking for an immediate repeal of Obamacare, for example, will most likely be disappointed. The GOP may have a majority in the Senate, but not a filibuster-proof one and anybody who thinks that Democrats will not use that tactic to block repeal of Obama’s signature legislation hasn’t been paying attention.
Areas that have some degree of bipartisan support such as infrastructure spending, and those that the President controls directly, such as energy policy, represent much better investment themes over the next year or so than the more controversial aspects of Trump’s platform. Companies that run large infrastructure projects such as Aecom Technology (ACM) will likely benefit, but given Trump’s stated priorities, there is another company in the area that should be investors’ first pick.
BWX Technologies (BWXT) is an energy infrastructure specialist with a large government services division as they also build engines for nuclear submarines. That combination of energy infrastructure and defense looks like one sure to benefit from a Trump administration. BWXT may be my preference, but in general civil engineering and defense companies should form a major part of any Trump era portfolio.
Energy, too, should be a focus. On that theme there are several stocks that could be bought. The obvious beneficiaries of Trump’s stated aim of “unleashing America’s energy potential” are the big oil companies, Exxon Mobil (XOM) and Chevron (CVX). They may be obvious buys but don’t let that put you off. The combination of a more beneficial corporate tax structure, shifting focus away from the environment, encouraging drilling everywhere including Federal land, and less investment in alternative energy all bode well for Exxon, Chevron and big oil in general.
From a shorter term perspective, sectors that had been sold off in expectation of a Clinton victory should form part of your portfolio for the early part of next year. There was a lot of talk from Hillary about controlling pricing by pharmaceutical companies, but if Trump really does allow market forces to rule the healthcare market then the days of $150k+ treatments aren’t over yet and pharma stocks, particularly established biotech companies such as Biogen (BIIB) and Amgen (AMGN) will reflect that.
As to areas to avoid, there are a few that stand out. Trump has made it clear that he would not be afraid of higher interest rates; he has even often spoken of the need for them to rise. The direct influence of the President on rates is minimal, but indirectly he can create an environment conducive to higher interest and that is bad for some sectors. Traditionally safe areas, such as telecoms and utilities may therefore be a liability in the early days of a Trump Presidency.
I don’t believe that he will go through with his promise to rip up all trade agreements, but even the threat of it could do serious damage to companies with a large presence overseas. Apple (AAPL) and Microsoft (MSFT) in the tech sector and global brand managers such as Proctor & Gamble (PG) along with the automotive sector as a whole will struggle if trade deals are abandoned.
You may not agree with all of these picks or conclusions, but as an investor, it is important that you at least review your portfolio after the election. Presidents don’t control the minutiae of the economy, but they do influence its general direction. When a change of administration, and especially a change of party and therefore philosophy, is approaching, making some updates and changes to your investments is just common sense.