If President Donald Trump were writing this story, he would be the first to note the “huge” impact that he’s had on the stock market though if you want to get technical about it, he hasn’t yet done any of the great things (slashing government regulations, scrapping Obamacare, overhauling the tax code, renegotiating trade deals) that he said he would do in his campaign.
I get that it’s still early days in the Trump presidency and that stock prices are a reflection of future earnings expectations.
But I have faith that the bluest of Democrats and reddest of Republicans are united by an interest in green money. Though it may sound like a cliche to remind people, the object in investing is to “buy low and sell high. People often forget this elemental truth when they are looking at an investing trend whether it be the “Dotcom Bubble” or in the case of the stocks I am looking at below “The Trump Trade.”
Let’s take a look at whether “The Donald” magic that has propelled these stocks to double-digit gains over the past year will be fleeting or lasting. They are in no particular order.
Trump Stocks to Watch: Cemex (CX)
Year-to-Date Gains: 10.1%
52-Week Performance: 49.8%
Price Target: $9.75
This Mexican company Cemex SAB de CV (ADR) (NYSE:CX) is the world’s third-largest cement producer, though it might as well be a U.S. company because it gets most of its sales from The Land of the Free and Home of the Brave, where it has 13 plants.
It stands to benefit from Trump’s $1 trillion infrastructure plan and, ironically, his “Great, Great Wall” along the U.S.-Mexico border that may cost an eye-popping $40 billion. According to the Wall Street Journal, Cemex chairman Rogelio Zambrano got lots of grief from politicians in Mexico when he told a newspaper that the company “will gladly” provide estimates for supplying cement for The Trump Wall.
However, media and analyst coverage is sporadic. Shares fell more than 5 percent on Thursday, and I can find no explanation for it. The stock surged 8 percent the day before, when CX stock settled a tender offer that will let it pay down some of its high debt load. The company recently reported its best full-year profit in nearly a decade thanks to cost cuts and asset sales.
Verdict: There are better choices than CX out there for investors.
Trump Stocks to Watch: Lockheed Martin (LMT)
YTD Gains: 7.6%
52-Week Performance: 24.9%
Price Target: $282.68
Of course, Lockheed Martin Corporation (NYSE:LMT) will benefit from President Trump’s massive defense spending increase. While high-profile weapons like the F-35 Fighter gets plenty of press, the world’s largest defense contractor has its fingers in many lucrative pies, such as aircraft control and defense electronics like the Aegis Combat Systems that are an integral part of modern navy ships. These electronics programs are highly lucrative.
On the other hand the headline risk for investors is something to worry about, especially given President Trump’s zeal to negotiate deals on defense contracts.
The Pentagon has long been critical of LMT’s management of the F-35 which, at $400 billion, is the most expensive weapons systems in history. Its top weapons systems evaluator released a highly critical report in January and raised questions whether it will be combat ready in 2020.
Let’s not forget LMT’s recent admission that it found a “material weakness” in the Sikorsky helicopter company it acquired less than a year ago from United Technologies Corporation (NYSE:UTX) and its disappointing guidance for 2017.
Verdict: Take a pass
Trump Stocks to Watch: Jacobs Engineering (JEC)
YTD Gains: 99.9%
52-Week Performance: 179.6%
Price Target: $58.66
Jacobs Engineering Group Inc (NYSE:JEC) has been among the most visible beneficiaries of the “Trump Bump” because of its role managing huge infrastructure projects. Moreover, the company is benefiting from a two-year restructuring plan and recently began paying a dividend.
However, the company’s Petroleum and Chemicals business, its largest, has struggled with low oil prices and will be a drag on its earnings for a while.
Verdict: JEC flies under the radar of both the media and Wall Street analysts, which in this case is a good thing. However, the “good news” appears to be factored into the stock price, so there is no sense of urgency to buy the shares absent a significant pullback.
Trump Stocks to Watch: Raytheon (RTN)
YTD Gains: 8.9%
52-Week Performance: 26.2%
Price Target: $168.67
Though Raytheon Company (NYSE:RTN) is best known as the world’s largest missile maker, the company’s biggest strength lies in making sophisticated electronics systems that do everything from directing artillery to routing aircraft. RTN is a huge player in missile defense systems such as Iron Dome that protects Israel and has capabilities in growth areas such as civilian air traffic control and cyber security.
Like LMT, however, RTN is in Wall Street’s penalty box for a fourth-quarter earnings miss and a lackluster 2017 earnings outlook.
Verdict: This is the one major defense contractor worth buying. Think of it this way; the U.S. military depends on RTN to fight our enemies and protect our allies.
Trump Stocks to Watch: Vulcan Materials (VMC)
YTD Gains: -4.4%
52-Week Performance: 17.1%
Price Target: $137.73
Despite its name, Vulcan Materials Company (NYSE:VMC) is not related to “Star Trek’s” Mr. Spock. In fact, the producer of construction aggregates (crushed stone, sand and gravel), asphalt and ready-mix concrete may be among the least sexy companies in the S&P 500. However, like JEC and CX, VMC is poised to benefit from Trump’s infrastructure plan.
CEO J. Thomas Hill is bubbling with optimism and is on the hunt for acquisitions. “Our operating disciplines will enable us to grow margins faster than pricing, and we have the financial strength and flexibility to grow, while at the same time returning capital to shareholders,” he said during the recent earnings conference call.
But shares have been under pressure after VMC’s disappointing quarterly results and investors’ expectations that the federal government’s infrastructure spending boom may not start until 2018 — though Hill noted that states are ratcheting up their spending on transportation and other projects which have been neglected.
Verdict: VMC seems like a better value than CX or JEC.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.