How To Invest In The Trump Era
Last Friday, Donald J. Trump was officially sworn in as the 45th president of the United States. As the news coverage last week focused on the inaugural festivities, demonstrations and cabinet confirmation hearings, I spent a considerable amount of time thinking about what the new administration will mean for investors -- namely, what sectors will likely benefit the most?
In general, I don't believe in starting investment research based on politics. But it is undeniable that the agendas set by any given administration sometimes have profound effects on the American economy and the companies that do business here. And so far, there is good reason to believe that will be especially true with the Trump administration.
While you may or may not have supported President Trump when he was campaigning, one thing is clear: this administration is likely going to be very friendly to the military.
Just take a look at some of the cabinet-level officials that have been nominated and note their military experience:
- Gen. James Mattis - Secretary of Defense (retired Marine Corps General, U.S. Central Command)
- Gen. Michael Flynn - National Security Advisor (retired U.S. Army Lt. General, former director of Defense Intelligence Agency)
- Gen. John Kelly - Secretary of Homeland Security (retired Marine Corps General, former head of U.S. Southern Command)
- Dan Coats - Director of National Intelligence (retired Senator from Indiana, served in U.S. Army, 1966-1968)
- Rep. Ryan Zinke (R-Montana) - Secretary of the Interior (former Commander, U.S. Navy, Seal Team Six)
- Sonny Perdue - Secretary of Agriculture (former Georgia governor, former Captain, U.S. Air Force)
- Steve Bannon - White House Chief Strategist (U.S. Navy, 1976-1983)
Granted, this not the entire list of nominees, but I think it's safe to say that this new administration is going to be very friendly to the armed forces and defense contractors.
This is especially prescient, because the U.S. Navy recently released a report detailing what it says it needs to be prepared for the challenges and threats it will face in the coming years. I'm talking about new ships. Lots of them. 82 to be exact.
- 2 new aircraft carriers
- 7 new amphibious warphare ships
- 10 new fast-attach submarines
- 62 new surface combatantants and minesweepers
- 14 new logistics and support vessels
Needless to say, that's a lot of work that will need to be funneled to defense contractors. And the best way to directly profit from this increased spending on Navy readiness is Huntington Ingalls Industries (NYSE: HII ) .
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While you've probably heard of other, bigger defense contractors like Lockheed Martin, Huntington is a big player in the defense contractor business. The company designs, services, builds and decommissions ships for the U.S. Navy, including nuclear-powered submarines, aircraft carriers and amphibious assault vehicles.
Although military spending overall has been under tight constraints during the past few years, Huntington has managed to continue booking orders from the Pentagon, bringing in a total of $7.05 billion in revenues in the previous 12 months. The company has been a crucial player in helping to implement the long-term strategic "pivot" advocated by the Pentagon to the Asia-Pacific region. This means, among other things, that priority for spending -- even during times of strict budget constraints -- has been given to shipbuilding.
That's been good news for Huntington, which has built more ships in more classes than any other shipbuilder for the U.S. Navy.
Fast-forward to today, and the previous restrictions are likely to loosen. And this increase in spending should directly benefit Huntington. It's the sole builder of aircraft carriers for the U.S. Navy, and only one of two builders of nuclear-powered submarines -- in addition to being the exclusive provider of refueling services for nuclear-powered aircraft carriers. It's also responsible for 70% of the current Navy fleet of surface combatant warships.
Shares of Huntington are up nearly 60% in the past year, and the stock is valued somewhat-richly, with a forward price-to-earnings ratio of just under 19. But I wouldn't rule out taking a harder look at this stock, given the enormous catalysts that are behind it. It's also worth noting that Huntington has posted healthy operating margins of about 11.7% in the past year and has a backlog of $20 billion in work.
If you're looking for more ideas to profit from the Trump presidency, then I encourage you to check out our new report -- TrumpNation 2017 . In it, you'll find our Top 10 "win-win" stocks for a chaotic 2017 and beyond. No matter what Trump does (or how the markets respond) these stocks are poised to soar into double-digit gains over the next few months. Check out the report here .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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