It's official. The craziest election we've probably ever seen on American soil is history, and Donald Trump, a man with no prior political or military background, is about to become the 45th president of the United States. Considering that every major poll had suggested he had very little chance of winning, the result of Election Day was nothing short of a shocker.
But capitalism moves on regardless of who is leading our nation, which means you, too, should be examining all the different ways a Trump presidency could affect your wallet and investments. Last week, we examined a few of the various sectors that could be poised to benefit from Trump's policies. Today, we're going to whittle that down a little more and look at seven top stocks that could be among the best to buy with Trump as president.
Image source: U.S. Department of Homeland Security, Flickr.
Understandably, a lot is contingent on Trump being able to get what he promised during his campaign passed in the Republican-led Congress. But, as we've seen in essentially every prior campaign for each preceding president, campaign promises and presidential actions can differ.
Keeping this risk in mind, here are seven top stocks to consider buying with Trump as president.
Image source: General Electric.
General Electric
Businesses that have a lot of money tied up in foreign countries could wind up welcoming president-elect Trump with open arms. Overseas profits would currently have to be repatriated at one of the highest corporate income tax rates in the world. However, Trump has proposed a special corporate repatriation rate of just 10%, with the belief that if cash is brought back into the U.S. and reinvested, it'll create jobs and ignite economic growth.
One such company that would benefit from this offer is conglomerate General Electric (GE +1.96%), which has more than $100 billion in cash being held overseas. If General Electric repatriated its cash, it would still have more than $90 billion left over that it could use for reinvestment or acquisitions.
If you recall, just two weeks ago, GE and Baker Hughes announced they were going to merge their oil and gas businesses to create a company with $32 billion in annual revenue that could save up to $1.6 billion in annual expenses. The combination is going to cost GE a one-time $7.4 billion dividend, but having its cash repatriated could encourage GE to make a number of similar earnings-accretive deals in the various industries in which it operates.
Image source: Cheesecake Factory.
Cheesecake Factory
One the key components of Trump's economic plan is to reduce and simplify individual income taxes. We currently have seven progressive tax brackets ranging from 10% to 39.6%. Based on Trump's proposal, which was actually taken from a Republican-led House of Representative proposal, there would be just three tax tiers -- 12%, 25%, and 33%. According to Trump, all Americans would receive a tax break.
What are Americans going to do with their extra cash? Given that the statistical data shows they save very little of it, my guess is they'll probably spend more on entertainment and luxuries, such as dining out. Cheesecake Factory (CAKE +4.05%) could be a prime beneficiary.
Cheesecake Factory has grown its comparable sales for 27 consecutive quarters (essentially since the Great Recession ended), implying that it already has strong pull with new and returning consumers. It's also an extremely efficient business, with the New Yorker noting in 2015 that the company uses data analytics to predict what consumers will buy, resulting in nearly 98% of the food it buys being used. With its niche price point, fresh food, and upscale feel, Cheesecake Factory's good times may continue.
Image source: Kinder Morgan.
Kinder Morgan
Donald Trump's U.S. energy independence plan is also expected to be a positive for the oil and gas industry. He'd like to see U.S. reliance on foreign oil minimized or ended, which means promoting all forms of domestic oil and gas drilling. Trump has more specifically advocated opening the onshore and offshore leasing of federal lands, and eliminating the moratorium on coal leasing.
On one hand, the promotion of the oil and gas industry could be a positive that leads to job creation. But, there's no guarantee it'll favorably impact oil prices themselves. Remember, the U.S. is just one of many nations that can influence oil prices. This is why focusing on midstream infrastructure is probably your best bet.
Here I'd suggest looking at Kinder Morgan (KMI +0.74%), the largest energy infrastructure company in America. If Trump is going to deregulate the industry, it's going to place added emphasis on the transportation, storage, and terminaling all of the oil and natural gas produced. Kinder Morgan has 84,000 miles of pipelines and 180 terminals. Best of all, Kinder Morgan's contracts are often set up for the long term, meaning it has minimal exposure to commodity price fluctuations.
Image source: Bank of America.
Bank of America
Large money center banks could also thrive under a Trump presidency for a variety of reasons. Whereas some Democrats, such as Sen. Elizabeth Warren, have been hypercritical of the too-big-to-fail banks and suggested they be broken up, Trump may deregulate the industry and repeal laws such as Dodd-Frank. A deregulated environment could be less costly and more conducive to growth for large banks.
Additionally, if Trump can get some of his growth initiatives and tax cuts approved by Congress, the assumed growth could lead to inflation and continued cycling out of bonds and into stocks. This would, in theory, push bond yields and interest rates higher, leading to higher interest income for banks. No large bank is poised to benefit from higher interest rates more than Bank of America (BAC +0.78%).
According to a filing with the Securities and Exchange Commission this summer, if short- and long-term interest rates were to rise by 100 basis points, Bank of America would earn $7.5 billion in additional net interest income. This works out to more than $0.70 per share in added annual EPS. Bank of America is also putting its Great Recession PR nightmare firmly in the rearview mirror, making it worth a serious look.
Image source; Getty Images.
General Dynamics
Just as peanut butter goes with jelly, a big defense budget seems to go with Republican presidents.
Trump has been quite clear that he wants to see our nation's military grow, which includes enlarging the size of the U.S. Army to 540,000 active soldiers, increasing the number of Air Force fighter aircraft to 1,200, expanding the Navy's ship total to 350, and increasing the Marine Corps to 36 battalions.
Though there are numerous companies that could benefit, General Dynamics (GD +0.36%) is the one you'll probably want on your list. As Motley Fool defense sector specialist Rich Smith points out, General Dynamics already supplies combat ships to the Navy, but it's poised to benefit as a supplier to the Marine Corps, too, which is set to grow by more than 50% if Trump's plans pan out. Either way, a Republican-led Congress and a Republican president is a dream come true for most defense companies, especially General Dynamics.
Image source: Getty Images.
Celgene
Drugmakers, both big and small, are also likely to benefit. Hillary Clinton had plans to go after drug companies' pricing power, whereas Trump has been less committed to striking back at high drug prices (though he has admitted drug prices in the U.S. need work). Trump has also suggested possible reforms at the Food and Drug Administration in order to expedite the drug-approval process.
A top stock that could really benefit here is Celgene (CELG +0.00%), a biotech blue chip operating in the oncology, inflammation, and immunology space. Celgene's workhorse is multiple myeloma drug Revlimid, which holds substantial market share in first- and second-line treatment and is banking on more than a half-dozen additional label expansions. On top of volume increases, Celgene also counts on its superior pricing power on Revlimid to grow its top line. Revlimid costs $100,000-plus annually, and Trump seems far less likely to threaten drugmakers' pricing power than did Clinton.
Celgene was also cheap to begin with. Prior to the election, it was valued at a PEG ratio well below one, and its management team continues to offer a transparent sales and EPS forecast through 2020. Couple this with more than 30 ongoing collaborations, and you have a top stock in the biotech space.
Image source: Getty Images.
Freeport-McMoRan
Finally, Trump has also suggested going all-in to repair America's aging infrastructure. Whereas Clinton had proposed $275 billion in infrastructure spending over a five-year period, Trump has suggested that $1 trillion should be spent over the course of a decade to repair and replace roads and bridges. Assuming he can get Congress to go along with his audacious spending proposal, infrastructure companies are poised to benefit.
A top stock to consider buying in the infrastructure space is Freeport-McMoRan (FCX +2.83%). With Freeport-McMoRan you actually kill two birds with one stone. Freeport is a copper-mining giant, and copper is used in a number of aspects in the construction process. Presumably, if infrastructure spending increases, the demand for copper will, too.
However, Freeport-McMoRan also has oil & gas operations that would benefit from Trump's energy independence push. Freeport has been buried under a substantial amount of debt, but non-core divestments, coupled with a higher copper price and improving demand, could change that tune quickly.
