“I will be president for all Americans,” said Donald Trump, after winning an upset victory in a historic but divisive presidential campaign. Trump was also gracious enough to acknowledge the contributions of his Democratic opponent Hillary Clinton who had conceded defeat a little earlier.
However, markets across the world were in no mood to share the enthusiasm in the Republican camp, at least initially, showing what they think of a Trump presidency by travelling south before heading higher during the day to finish with across the board gains.
But does this mean that the markets will be fettered to a long period of losses? This is unlikely, given the strength of U.S. economic fundamentals and its corporate resilience. European markets have already staged something of a recovery.
Instead of shying away from markets, investors would find themselves better off if they choose to bet on stocks likely to gain from a Trump presidency.
Global Markets Panic, Peso Plunges
Panic was evident among investors across the world as the prospects of a Trump presidency increased dramatically. At one point, stocks in London had dropped 2% with futures hinting that losses could run up to 4%. Asian markets lost the night before as the outcome of a hard fought election became increasingly clear. The Nikkei was the most drastically affected, losing 5% following fears of a replay of the Brexit-induced rout.
Meanwhile, the Peso slumped to its lowest ever level following fears that Trump would renegotiate free trade agreements. Additionally, the President elect has promised to tax income repatriated by migrants. The proceeds of this tax are supposed to be used for a barrier on the southern U.S. border.
Trump’s Economic Agenda
Much of the apprehension surrounding a Trump presidency is related to his economic agenda. One of the pillars of Trump’s campaign was a promise to cut U.S. corporate tax rates from 35% to 15%. Such a move is projected to radically increase the attractiveness of the U.S. as a business destination. This in turn would create explosive economic growth, a conclusion viewed by many with much skepticism. Details about how he intends to make up for the revenue lost as a result of such a proposal remain elusive.
Additionally, Trump has promised to renegotiate trade agreements and create more jobs. He has been especially critical of free trade agreements with China and Mexico, which, he claims have resulted in substantial job losses. Trump has gone so far as to call China a currency manipulator and has argued in favor of higher tariffs on goods from China. Trump’s job creation proposals include his plans to cut tax rates and relaxing regulations related to corporate governance. This has also raised apprehensions among several market watchers.
Recession in the Offing?
Dow futures and bonds plunged after the first signs of a Trump victory had emerged before the rally. Leading economists had also predicted that a recession was in the offing. But are such fears grossly overstated? Markets may feel hugely reassured if Trump backtracks on some of his more contentious proposals. For instance, Trump’s opposition to NAFTA has caused much heartburn among auto companies and other manufacturers who have invested heavily in Mexico.
Additionally, his proposals on China and immigration could end up raising inflation and creating labor shortages.
Instead, if Trump simply retreats from some of these stated positions, investors would return to the markets steadily.
Here are Our Choices
Stocks of pharma, defense and mining companies in Europe have already gained as a result of Trump’s victory. Given the inherent strength of U.S. companies, it is likely that stocks standing to benefit from this presidency will soon chalk up gains.
Betting on these stocks seems to be most appropriate option at this moment. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics…
Northrop Grumman Corporation (NOC) supplies a broad array of products and services to the U.S. Department of Defense. Trump’s plan to raise defense and military spending is likely to benefit this Falls Church, VA-based company.
Northrop Grumman has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 27.4% for the current year. Its earnings estimate for the current year has improved by 5.9% over the last 30 days. NOC finished up over 5% in Wednesday trading.
Alliance Resource Partners, L.P (ARLP) is a diversified producer and marketer of coal to major U.S. utilities and industrial users. Trump’s promise to revive the coal industry was largely responsible for his victory in West Virginia.
Alliance Resource Partners’ earnings estimate for the current year has improved by 19.2% over the last 30 days. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 7.21, lower than the industry average of 8.72.The stock has a Zacks Rank #1. ARLP finished ahead over 4% in Wednesday trading.
Merck & Co., Inc. (MRK) has received much needed respite from a Trump win. A Clinton victory would have set off alarm bells in an industry facing allegations of excessive price increases.
Merck has a Zacks Rank #2 (Buy). The company has expected earnings growth of 4.9% for the current year. Its earnings estimate for the current year has improved by 0.7% over the last 30 days. MRK finished ahead over 6% in Wednesday trading.
Intel Corporation (INTC) is estimated to have offshore cash reserves of nearly $15 billion. The chipmaker would benefit from Trump’s plan of levying a one-time tax on such income if it is repatriated.
Intel has a Zacks Rank #2. The company has expected earnings growth of 14.4% for the current year. It has a P/E (F1) of 13.04, which is lower than the industry average of 28.88. Its earnings estimate for the current year has improved by 2.1% over the last 30 days. INTC finished up Wednesday with a marginal gain.
Regional Management Corp (RM) is a diversified specialty consumer finance company engaged in providing loan products primarily to customers with limited access to consumer credit from traditional lenders. The company is likely to benefit from Trump’s move to dismantle Dodd-Frank related regulations.
Regional Management has a Zacks Rank #2. The company has expected earnings growth of 11.5% for the current year. Its earnings estimate for the current year has improved by 1% over the last 30 days. RM finished ahead over 7% in Wednesday trading.
Zynga Inc (ZNGA) is the world’s largest social game developer and is being touted as a potential takeover target in the tech space. The tech sector is likely to face heightened merger and acquisitions activity, likely to proceed unimpeded in a looser regulatory environment.
Zynga has a Zacks Rank #2. The company has expected earnings growth of 22% for the current year. Its earnings estimate for the current year has improved by 1.1% over the last 30 days. ZNGA finished down in Wednesday trading.
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