It has certainly been an impressive run for the stock market since Donald Trump shocked analysts with his victory. Despite initial concerns that his unexpected rise to power would destabilize the economy, stocks quickly surged higher. U.S. markets broke to new highs, with the Dow Jones Index rising almost 2,000 points since Trump won and flirting with the long-awaited 20,000 level.
That said, Trump’s excitement has its limits. Many sectors, such as biotech, that initially rallied on Trump positivity are now fading. As he gives more clarity into his governing approach, investors are starting to assess the next four years with cooler heads.
However, some stocks still remain near their post-Trump peaks that could be vulnerable in 2017. While it’s too early to have much deep insight into how the Trump administration will actually play out, we can start to position our portfolios with an eye toward the future.
With that in mind, here are three of the biggest post-Trump winners that could rapidly retreat in 2017.
Trump Stocks to Sell: Bank of America Corp (BAC)
Bank of America Corp (NYSE:BAC) has soared over the last two months. BAC stock is up from $16 to $22.80. The financials sector has been hot and Bank of America stock has led the way. If Trump’s slogan was Make Bank of America Great Again, he could already claim success.
The rally has come due to higher interest rates. BAC has structured its loan book to profit significantly in the event that interest rates rise, as they are now doing. This could all come undone if Trump spooks the market.
As it is, investors are betting that inflation will rise due to Trump’s promised stimulus and tax cuts. Should these not materialize, investors could move back into bonds, sending interest rates back down and taking BAC stock with it.
Up here at $22.80, Bank of America stock is trading at a decent premium to book value. It’s a mediocre bank that doesn’t have particularly impressive profitability metrics. And the anemic 1.3% dividend yield is almost an afterthought to investors, who expect meaty dividends from their financial holdings. BAC stock could keep running if Trump’s current political momentum continues, but you may want to take profits before Jan. 20 comes.
Trump Stocks to Sell: Freeport-McMoRan Inc (FCX)
After falling below $4 earlier this year, shares of metals miner Freeport-McMoRan Inc (NYSE:FCX) have been sizzling. FCX stock has basically quadrupled off the lows, and now trades just below $14. Shares are up roughly 21% since Trump won, even with the recent sell-off. That said, the dip in FCX stock from $16 to the high $13s over the past week could be a bad omen.
Mining stocks have traded higher on hopes that the Trump administration will consume great quantities of raw resources. It takes a lot of raw materials to build bridges, ports and other infrastructure projects. But markets appear to have become carried away. It’s worth remembering that China, not the U.S., is the lead marginal buyer of most of these commodity products. And China’s economy is struggling, and the rising U.S. dollar, aided by Trump’s win, is causing China further strain.
Copper notably jumped from $2.10 per lb in late October to as high as $2.75 following Trump’s victory. But copper has fallen back under the $2.50-mark. And gold and silver are plunging, with gold in danger of taking out the $1,050 per oz bear market low. FCX stock will drop with the metals prices if Trump commodity enthusiasm continues to recede.
Trump Stocks to Sell: Deere & Company (DE)
Shares of Deere & Company (NYSE:DE) are up close to 20% since Trump won. And DE stock is at 52-week highs. If you were only looking at the company’s financial statements and 2017 outlook, you’d struggle to understand why.
Agricultural equipment has suffered a multi-year slump. There aren’t many signs that the sector has turned yet. Wheat is hitting new 52-week lows now, while corn is still trading sideways. No Trump rallies there.
DE stock trades at more than 20x trailing and forward earnings. Shares surged after the company’s most recent earnings report, which showed revenues down 3% and net income off 19% versus the same quarter in 2015. This beat analyst expectations, but still showed an overall deterioration in the business.
It is often smart to buy companies in beaten-down sectors. And DE stock is in a beaten-down sector indeed. However with Deere up from $77 to $103 recently, investors have already priced in much of the recovery. Even if you assume the company rebounds more quickly than expected in 2017, it still wouldn’t be cheap. Trump’s victory appears to have caused investors to throw money at the industrials sector indiscriminately.
Profit off that trend by taking profits in DE stock at 52-week highs.
As of this writing, Ian Bezek did not hold a position in any of the aforementioned securities.
