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All Contents © 2018The Kiplinger Washington Editors
By James Brumley, Contributing Writer
| January 19, 2018
Year one of Donald Trump’s presidency is just about in the books, and what a year it has been. The first 365 days have been marred by accusations of scandal, yet they’ve also been cheered for his successful bid to overhaul the nation’s tax rates. North Korea has never been more of a threat, yet the economy is humming along at an annualized growth pace of more than 3%.
You can’t say it hasn’t been interesting.
It’s also been particularly rewarding for investors, with the Standard & Poor’s 500-stock index gaining 31% since his election in late 2016, and 23% since his Jan. 20, 2017, inauguration.
That was but a drop in the bucket for some of the stocks that were perfectly positioned to benefit from a Trump presidency. Here’s a rundown of the 10 most notable large- and mid-cap winners over the past year.
Excluded from the list are the stocks that jumped thanks only to binary events, like a biotech company securing a green light from the FDA, or a company just adding “Bitcoin” to its moniker. Also skipped are low-volume and low-priced penny stocks that the average investor is better off avoiding. Left behind is a curious mix of familiar and unfamiliar winners under President Trump’s first year, each with its own interesting success story.
Data is as of Jan. 18, 2017. Click on ticker-symbol links in each slide for current share prices and more.
Courtesy Trein Foto via Flickr
Performance during Trump presidency: 106.6%
The shedding of now-standalone specialty chemicals outfit Chemours (CC, $51.60) from DuPont – now DowDuPont (DWDP) – in 2015 was shrouded in doubt. Jim Shein, Kellogg School of Management professor of business strategy, summed up the prevailing concern at the time by saying, “From the standpoint of DuPont, this is a smart move. From the standpoint of Chemours, I’m not so sure. It’s an interesting way to get rid of the liabilities.”
As it turns out, the young company knew exactly what it needed to do – and did it – fooling all of the doubters in the meantime. Sales and earnings grew respectably during 2017’s first three quarters, and analysts are looking for more of the same for the foreseeable future. The top line is expected to swell almost 11% this year, driving 2017’s projected full-year profit of $3.69 per share to $5.11 in 2018.
Investors, mostly surprised by Chemours’ unlikely success, have enjoyed just more than a doubler since President Trump was sworn into office.
Performance during Trump presidency: 154.8%
IPG Photonics (IPGP, $260.75) makes equipment that harnesses light and turns it into a tool. Customers include semiconductor companies, micromachining outfits, makers of cutting-edge medical equipment and telecom service providers increasingly leaning on fiber-optic communications.
Most recently, the advent of lidar (the technology that allows self-driving vehicles to detect its surroundings) has thrust IPG into the limelight. Goldman Sachs expects the lidar sliver of the autonomous vehicle market alone to reach $10.6 billion by 2025.
IPG Photonics fired on all cylinders last year. Sales were on pace to finish 38% higher, driving a 155% advance from the stock over the past 12 months as greater scale finally started to widen IPG’s profit margins in a big way.
This company has only laser-etched the surface, however. IPG acquired Laser Depth Dynamics in December, securing a whole new set of technologies it can integrate into its offerings. And it remains an appealing acquisition target in and of itself.
Courtesy Z22 via Wikimedia
Performance during Trump presidency: 171.1%
Square (SQ, $40.27) could be considered the all-American success story. In 2009, CEO Jack Dorsey saw a need and filled it. That need is a way for small businesses to accept credit cards with minimal hardware, sometimes no more than a smartphone – a market that largely was ignored by the big boys in the credit card payment industry.
Square has seen respectable growth since its inception, but the top line began to accelerate in earnest in 2015 and heated up all the way through 2017. While the company hasn’t posted fourth-quarter results yet, through three quarters, Square’s revenues are up 27% year-over-year, and its loss has been whittled down to 30% of what it was at the same point in 2016. The pros are expecting even stronger growth rates for the Q4 report, and comparable revenue expansion for 2018.
SQ shares have rallied more than 170% since this time in January 2017. It could be propelled even further if it meets analysts’ projections and swings to its first full-year profit once fourth-quarter numbers are posted.
Performance during Trump presidency: 195.2%
Arista Networks (ANET, $265.19) isn’t exactly a household name, but the near-tripling it has dished out to shareholders since President Trump’s inauguration obviously has turned some heads.
And you may know Arista better than you think you do. This is the company that has been in a legal spat with networking giant Cisco (CSCO) for quite some time. The latter filed a patent infringement suit against the former in 2016, leading the International Trade Commission to ban the import of some of its wares into the United States pending a future legal decision overturning the one that currently stands.
Still, Arista has been luring customers away from Cisco on other fronts, and in the lucrative enterprise market in particular. KeyBanc analyst Alex Kurtz opined last month of Arista's enterprise opportunity:
“This remains one of Arista’s least-penetrated verticals in the $11B high-speed data center switching TAM (about 50% of TAM per Dell’Oro). Management reiterated its ability to leverage high-contribution-margin cloud titan revenue to help fund this expansion. Arista’s VP of Sales also highlighted its ability to break into Fibre Channel networking against Cisco MDS and Brocade as incremental sales.”
The pros are calling for revenue growth of 27% this year.
Courtesy Carrie A. via Flickr
You may know Align Technology (ALGN, $270.70), even if you think you don’t.
Align is the organization that makes and markets Invisalign dental braces. The clear teeth-straightening tools have been around for a while now, but sales and earnings reached a critical mass in 2016. Once the fourth quarter’s tally is taken, the top line should have grown 34% in 2017, with analysts expecting another strong double-digit improvement this year. But the company’s progress so far has been enough to prod shares 195% higher since Jan. 20, 2016.
While the rally has been impressive, it also has made the stock uncomfortably expensive. ALGN trades at 61 times 2018’s projected earnings. The company is growing quickly, but perhaps not quite fast enough to merit that kind of valuation.
On the other hand, maybe Align will justify its frothy price. It recently inked a deal with Patterson Companies (PDCO) that adds Align’s product to Patterson’s dental modeling portfolio. Moreover, it’s just now breaking into the Asian market in a big way. As of the third quarter, 1,000 orthodontists in China alone were trained to utilize the Invisalign system. It hasn’t even gotten big there yet.
Performance during Trump presidency: 218.8%
When a biotech stock dishes out a triple-digit gain, it’s often not entirely merited or sustainable. But that doesn’t appear to be the case with Corcept Therapeutics (CORT, $23.58). A nearly 220% gain over the past 12 months has CORT shares trading at 81 times trailing earnings. However, the company’s current earnings trajectory translates to a much more reasonable forward-looking P/E of 27.
Corcept Therapeutics is a one-trick pony, so to speak. That’s generally a dangerous business model, but when that one proverbial pony is a drug like Korlym, it works.
Korlym is a treatment for hyperglycemia (high blood sugar) caused by Cushing’s syndrome. Excess blood sugar can cause a variety of health problems, but chief among them is the risk of inducing diabetes. More important, after a slow start, recent initiatives like the expansion of Corcept’s sales force have finally started to get traction. Last year’s revenues are projected to have nearly doubled, and 2018’s revenue growth is expected to jump another 50%.
Performance during Trump presidency: 226.6%
You may know RH (RH, $96.62) better as retailer Restoration Hardware, but the company changed its moniker at the beginning of 2017. Whatever you choose to call it, RH shares have made an amazing 227% run since Jan. 20 of last year.
The size of the gain is largely attributable to lucky timing. RH stock fell more than 70% between its late 2015 peak and the end of 2016, in response to a surprisingly brisk revenue headwind and accelerated shrinkage in its margins. The retailer turned things around nicely last year, however, and investors took notice.
Some of the big gain, however, has to be chalked up to a bright future against a backdrop of economic growth. Loop Capital Markets analyst Anthony Chukumba recently explained of his upgrade, “We believe RH’s products are higher quality (and higher priced) than other national chains such as Ethan Allen Interiors and Williams-Sonoma, but far less expensive than those of high-end furniture showrooms,” allowing RH to stand out in an increasingly competitive arena.
Performance during Trump presidency: 243.9%
Scientific Games (SGMS, $54.85) isn’t a household name. It’s not small, at $4.9 billion in market capitalization, but it’s not big enough to turn heads, either. Adding to its obscurity is that the maker of video gambling equipment and solutions doesn’t offer products to consumers. Its customers are casinos and the organizations that run lotteries, domestically and abroad. So it’s possible you’ve used Scientific Games’ technology without ever realizing it.
More important, however, is this question: Is the stock’s 244% 12-month advance justified? Realistically speaking, probably not – yet – but the future is indeed bright.
Scientific Games has been in acquisition mode. It finalized its purchase of NYX Gaming in early January, and it announced a deal to acquire Tech Art in October. These transactions, and others like them, have been growing the top line and will continue to do so. They’ve also generated an $8 billion-plus mountain of debt, but investors just don’t seem to care. Perhaps they’re convinced the U.S. will legalize sports betting sooner or later.
That might not be a bad bet. Ditto for Scientific Games’ interest in assembling various industry assets. David Schwartz, director of the Center for Gaming Research at the University of Nevada-Las Vegas, recently said about the opportunity, “Many in the industry think it is only a matter of time before sports betting is opened up one way or another. With that mindset, it is important to establish a position now, as states and operators will be choosing partners quickly.”
Performance during Trump presidency: 247.8%
OLED (short for organic light-emitting diode) screens aren’t a new technology. But it’s only recently that these power-efficient, higher-clarity display screens have been cheap enough to become the new norm. Apple (AAPL), for instance, used an OLED display screen for the first time with the recently launched iPhone X.
So who benefits from this? Answer: Universal Display (OLED, $205.60), which makes OLED display screens.
Universal Display’s shares are up nearly 250% in the past year, so some investors clearly know all about the company and what it does – and have high hopes for the future. And well they should. OLED’s top line should finish 2017 about 61% higher, barring any surprises in its fourth-quarter results. Analysts are calling for 26% growth this year as the company’s screens continue to move toward center stage.
Valuation is a problem. The forward-looking P/E on 2018’s estimated earnings is 64 – leaving OLED ripe for profit-taking despite the encouraging future.
Performance during Trump presidency: 409.2%
It’s hard to beat iconic weight-loss company Weight Watchers (WTW, $265.19), whose shares have quintupled over the past year.
Fortuitous timing helped – a lot. WTW shares had fallen by about 85% between their 2012 high and early 2017, reflecting a slow but clear deterioration of the company’s top and bottom line. But overzealous sellers didn’t give the turnaround effort enough credit early on. Sales were on pace to expand 12% for 2017 as of the third-quarter report, driving a 55% improvement in the bottom line that most investors (professional and amateur alike) simply didn’t see or believe in until right around President Trump’s inauguration.
Of course, no examination of Weight Watchers’ recovery would be complete without mentioning its catalyst. Spokesperson and major company shareholder Oprah Winfrey has to get the lion’s share of the credit for the turnaround after taking over as top spokesperson back in late 2015. Indeed, the last leg of the rally has been inspired by speculation that, following her speech at this year’s Golden Globes award show, she may run for U.S. president come 2020.
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