THE TRUMP TRADE: WHERE TO MAKE MONEY IN THE NEW PARADIGM

Trump-tradeThere is a lot of speculation regarding which industries will benefit under the Trump presidency. Some look poised to reap dividends from changes in policy. However, when (and if) the campaign promises will get enacted into law, is a matter for debate. On the other hand, there are industries that look like they might lag behind. There remain a substantial number that are in the toss up category – those which would gain from the passage of certain policies, while suffering if others become law. There are still others which are expected to be buffeted by positive economic/business conditions and a negative regulatory environment, or the other way around.

Winners: Industries that are expected to benefit from Trump policies are:

Oil drillers: Lighter regulation would benefit this industry
Gas pipelines: Higher infrastructure spending, lighter regulation is a plus
Coal: Trump – “Bring back coal” and prices were already rising due to gas price increases
Banks: Possible repeal of Dodd Frank, and rising interest rates are a bonus
Pharmaceuticals: Anticipating less scrutiny of drug prices
Construction: Expected be lifted by proposed increases in infrastructure spending
Defense: Increased military spending could provide support to this sector

The projected losers? Foreign trade, Auto manufacturers, Alternative energy companies

The defense industry: The Trump presidency, with republican majorities in the house and senate, are expected to be good for the defense industry. Likely beneficiaries of an increasing military force are BAE Systems, General Dynamics, helicopter makers Boeing and Lockheed Martin, and Northrop Grumman, which is building the Air Force’s new bomber

Real estate: This is the industry that the President comes from, so one can expect real estate to benefit. However, rising interest rates could dampen the housing market. Also if the perception of US trade policies becomes negative, international demand for U.S. luxury housing might decrease. Builders are optimistic about the prospects of lower tax rates or benefits from improvements to roads, bridges, public transit and other infrastructure.

Banks: With an expectation of the loosening of laws such as the post financial crisis Dodd-Frank Wall Street Reform Act, banks are gearing up for regulatory relief. And rising interest rates are already buoying the banking business which benefits greatly from the spreads between the rates at which it borrows and lends.

Hospitality: This one is a toss up. Hotel owners expect to see margins rise if the Affordable Care Act is repealed and minimum wages are curbed. On the other hand, clamping down on immigration could seriously hurt the hotel labor situation.

Coal: “Bring back coal” a rallying cry from the Trump presidency, is a welcome relief from this beleaguered industry which is has recently benefited from a strengthening of coal prices due to cuts in production.

Infrastructure: Plans for a large scale infrastructure program of building highways, bridges, tunnels, airports, schools and hospitals are expected to benefit companies such as Caterpillar and John Deere.

Oil: Oil infrastructure companies are similarly expecting an up tick in drilling and pipeline activity due to easing of restrictions on projects. Energy Transfer Partners, owner of the Dakota Access pipeline could be a beneficiary.

Losers
Foreign trade: Companies involved in imports and exports are watching out for policy that might change the landscape.
Health information technology: Companies that had ramped up under Obamacare could see a downturn.
Retail: Retail finds could find itself at a cross-roads. Business tax reform could benefit the industry but any curbs on free trade would be sure to affect the bottom line of the retail industry – including Walmart.
Auto manufacturing: This sector is in the cross-hairs of the administration, with threats of penalties aimed at keeping jobs in the US. Companies such as Ford are vulnerable with their manufacturing operations in located in Mexico. Toyota – a foreign brand, with production in Mexico and the US as the largest market, could be doubly at risk.

Telecom: Any roll back of net-neutrality rules could benefit large players in the telecom industry such as AT&T and Verizon, and put smaller companies at a disadvantage.

Overall: Reform of business taxes could produce job growth by allowing U.S. corporations to repatriate and spend hundreds of billions of dollars that are held overseas to get around US tax policies. Foreign manufacturing, especially in Mexico, could feel negative effects. Reversal of climate change regulation from the Obama era might adversely affect green energy companies.

Questions? Email td@vedafunds.com

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