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All Contents © 2017The Kiplinger Washington Editors
By Elizabeth Leary, Contributing Editor
| July 2016
Trump: Gage Skidmore via Wikipedia; Clinton: Zachary Moskow via Wikipedia
Donald Trump or Hillary Clinton — one or the other will be president next year. How might that affect your stock portfolio?
We've assembled two lists: One of seven firms that stand to benefit if Trump is elected, one of seven firms that stand to benefit if Clinton is elected.
In searching for potential beneficiaries of a Trump presidency, we examined the Republican candidate’s statements and positions on energy, immigration, free trade and more. Because Clinton has been in politics longer and has released a greater number of official policy positions than Trump, investors have a better chance of anticipating how various industries might be affected by a Clinton presidency than they would under a Trump administration.
Of course, neither Trump nor Clinton, the Democratic Party nominee, will be able to unilaterally push through his or her agenda after taking office. That’s because the Senate could very well flip into Democratic hands following the election, while the House is likely to retain its Republican majority.
Prices and returns for the Trump stocks are as of July 8; for Clinton stocks, as of July 11. Price-earnings ratios are based on estimated year-ahead earnings.
WestportWiki via Wikipedia
Share price: $41.56
Market capitalization: $11.6 billion
52-week range: $27.22 to $42.13
Price-earnings ratio: 19
Dividend yield: 3.2%
Trump’s tax plan calls for cutting taxes for top earners. Among other things, he would lower the highest federal income tax bracket to 25% from the top rate of 43.4% and ax the alternative minimum tax, a supplemental assessment that tends to boost tax bills for more well-heeled filers. He also plans to crack down on imports of counterfeit goods from China. Both policies should spell a win for the high-end accessories maker, which charges more than $1,000 for some of its handbags.
Coach is aiming to spruce up its brand as it digs itself out of a two-year stretch of declining sales, caused in part by an over-reliance on discounting. The company is aiming to reduce its use of online promotions and its presence in department stores. Instead, Coach has been working to lure customers into its own stores and to persuade them to pay full price, by offering limited-edition runs of new items, such as its current Mickey Mouse–themed purses and wallets.
Coach’s most recent results were encouraging. For the quarter that ended March 26, sales were up 11% from the same period in 2015 and earnings per share of $0.40 were up 27%. The company generates more than enough free cash flow (cash profits after capital expenditures) to cover its annual dividend rate of $1.35 per share.
Anthony92931 via Wikipedia
Share price: $93.54
Market capitalization: $387.7 billion
52-week range: $66.55 to $94.49
Price-earnings ratio: 28
Dividend yield: 3.2%
Trump may be better known for his vow to resuscitate the coal industry than for any statements he’s made about oil, but he is more likely to give the oil industry a boost, says Paul Christopher, head global market strategist for the Wells Fargo Investment Institute. “There are strong market forces stacked against coal,” Christopher says. “Oil has more immediately favorable prospects, especially if prices rebound in the coming years as we expect.”
Exxon, the world’s largest energy company that isn’t government-owned, offers a conservative way to bet on favorable oil trends. Exxon doesn’t need oil prices to rise in order to make money. Even as the price of oil slid from $108 a barrel in June 2014 to $26 last February, Exxon remained profitable thanks to cost cutting and results from its sizable refining and chemical operations, which benefit from lower oil prices (low energy prices mainly hurt the exploration-and-production part of the business). Exxon’s shares have returned 3.4% annualized over the past three years, compared with an annualized loss of 2.3% among large diversified energy companies.
Whispertome via Wikipedia
Share price: $33.73
Market capitalization: $2.5 billion
52-week range: $25.52 to $38.06
Price-earnings ratio: 11
Dividend yield: 7.7%
Geo Group, a for-profit prison operator, is under the political gun. Clinton has voiced desires to shut down the for-profit prison industry. Geo’s stock has shed 24% of its value since April 2015, when both Clinton and then-rival Bernie Sanders announced their candidacies. That has driven up the stock’s dividend yield to 7.7%, a figure so high that it suggests that investors think the company may have to cut its payout. Trump, by contrast, has said he believes private prisons work better than government-run penitentiaries. So Geo shares could rally if Trump wins the presidency.
Through a partnership with U.S. Immigration and Customs Enforcement, Geo also operates eight facilities that house immigrant detainees. If Trump were to follow through on his campaign-trail promise to deport all of the estimated 11 million undocumented immigrants living illegally in the U.S., demand for Geo’s services could explode.
Geo Group is set up as a real estate investment trust. As such, it doesn’t have to pay corporate income taxes as long as it passes along at least 90% of its earnings to shareholders as dividends. REITs are typically valued in relation to funds from operations, a figure that typically adds back depreciation to reported earnings. Josh Duitz, comanager of the Alpine Global Infrastructure Fund, which owns the stock, says Geo’s shares, trading at 11 times estimated year-ahead funds from operations, are well-priced compared with other REITs.
Raysonho via Wikipedia
Share price: $28.46
Market capitalization: $1.4 billion
52-week range: $19.56 to $29.34
Price-earnings ratio: 16
Dividend yield: 1.4%
Trump has vowed to force some American companies to bring their foreign manufacturing operations back to the U.S. It’s unclear if or how he might achieve this, but any policies designed to promote U.S. manufacturing could potentially help La-Z-Boy, which makes almost all of its signature recliners, sofas and other furniture in its five U.S. plants, using domestic and imported materials. Moreover, La-Z-Boy would suffer less injury than many other U.S. manufacturers, such as automakers, under protectionist trade measures, because only 11% of its sales come from outside the U.S.
The company has been expanding its store count. It aims to reach 400 Furniture Galleries locations by 2019, compared with 315 such stores in 2014. That should help it capitalize on a continued housing recovery. La-Z-Boy’s earnings per share have grown at an average annual clip of 28% over the past five years. Because earnings growth has eclipsed share-price appreciation (the stock has returned 24% annualized over the past five years), La-Z-Boy shares still look reasonably priced.
SEE ALSO: 4 Retailer Stocks to Buy Now
Share price: $59.35
Market capitalization: $164.3 billion
52-week range: $45.69 to $60.07
Price-earnings ratio: 16
Dividend yield: 3.1%
To be sure, neither presidential contender is exactly chummy with the pharmaceutical industry, and under either candidate the industry may face increased regulatory scrutiny of drug prices. But Wells Fargo’s Christopher says Democrats are more likely to favor price caps, while Republicans are likely to prefer negotiating drug-price growth rates—a more favorable approach for the industry.
Merck boasts a terrific lineup of current top sellers, including treatments for Type 2 diabetes, HIV and arthritis. Sales declined for four straight calendar years through 2015 as the company lost patents on some of its key drugs. But the worst of those losses is now behind Merck, and the company has two new promising drugs just hitting the market. Zepatier, a drug that treats hepatitis C, received approval by the Food and Drug Administration in January. Keytruda, a promising drug that fights cancer using a patient’s own immune system, received approval in October for treating certain types of lung cancer and is up for FDA review in August for treating additional cancers. The stock has returned 14% year-to-date, yet still looks reasonably priced compared with other large drug makers.
SEE ALSO: 8 Foreign Stocks Paying Big Dividends
Share price: $29.07
Market capitalization: $1.6 billion
52-week range: $14.71 to $30.44
Price-earnings ratio: 16
Dividend yield: 0%
We understand that investing in a gun manufacturer isn’t for everyone. But a Trump win would certainly have the potential to curb efforts to enact tougher gun-control laws. According to Trump’s campaign website, the candidate, who has been endorsed by the National Rifle Association, opposes any bans on types of guns or magazines.
Shares in the maker of handguns and assault rifles have performed astonishingly well. Over the past five years, Smith & Wesson shares have soared eight-fold, or 52% annualized, compared with 12% annualized for Standard & Poor’s 500-stock index. Gerry Sullivan, manager of the USA Mutuals Barrier Fund, which owns the stock, says even a Clinton win could provide a short-term pop for the stock. That’s because the threat of new gun-control legislation actually tends to boost the stock, as existing or prospective gun owners rush to make new purchases. A Trump win, on the other hand, might provide more long-term benefits.
Share price: $123.61
Market capitalization: $16.5 billion
52-week range: $78.83 to $124.28
Price-earnings ratio: 34
Dividend yield: 0.6%
The nation’s roads and other infrastructure are overdue for a makeover, and they might just get it if Trump is elected president. Trump has voiced unequivocal support for infrastructure spending, even calling for a national project on the scale of the New Deal. Increased spending on roads, bridges and highways would be a boon for Vulcan Materials, the largest U.S. producer of construction aggregates, such as gravel and crushed stone. Roughly half of the company’s shipments go to public-sector projects such as highways.
Commercial construction provides the other major source of demand for Vulcan’s materials. That’s a plus, because building warehouses, parking garages, office buildings and hotels typically requires more of Vulcan’s materials than does construction of houses. Nonresidential private construction has been in recovery mode since 2011, and Vulcan’s stock price has followed its upward trajectory. The shares have returned 27% annualized over the past five years.
One more potential boost for Vulcan if Trump wins: Building a wall along the border with Mexico would require more than 8 million cubic yards of concrete, according to estimates by The Washington Post.
Courtesy Cognizant Tech Solutions
Share price: $58.44
Market capitalization: $35.4 billion
52-week range: $51.22 - $69.80
Price-earnings ratio: 16
Dividend yield: 0
Cognizant provides technology consulting and outsourcing services. But one distinction in particular sets it apart: Cognizant was the largest sponsor of H-1B visas last year, according to InformationWeek, an online magazine that covers technology. Clinton hasn’t declared a clear policy on H-1B visas, which allow skilled immigrants to work in the U.S. for up to six years at a time and which tech companies rely on heavily. However, in at least one appearance during her previous run for president in 2007, she expressed support for raising the number of these visas awarded. And she hasn’t detailed any plans to place new restrictions on the visas, as Trump has.
But forget politics. Buy the stock for Cognizant’s growth. The company has been slaying the competition, thanks to its obsessive focus on building enduring customer relationships. Annual revenue growth has averaged 22% over the past five years, and earnings per share have expanded by an annualized 17%. Analysts expect earnings growth to continue at a brisk 14% clip over the next three to five years.
SEE ALSO: Great Stocks to Buy While They Are Cheap
Share price: $78.16
Market capitalization: $30.8 billion
52-week range: $43.91 - $95.49
Price-earnings ratio: 12
Dividend yield: 0
Private hospital operator HCA Holdings should benefit from a Clinton win because the candidate has vowed to protect and expand Obamacare—or, more formally, the Affordable Care Act (ACA). HCA, like other hospitals, has benefited from the expansion of health insurance under Obamacare, with increased patient admissions and reductions in unpaid bills, says Paula Torch, an analyst with Avondale Partners, a Nashville investment bank. A Clinton win would be “the best possible outcome” for hospital stocks, Torch says, because it would end any talk of repealing the ACA, at least during Clinton’s tenure.
Of course, HCA has already experienced the bulk of the benefits from ACA, so a continuation of the status quo may not boost the stock. But HCA could reap extra gains if a Clinton administration is able to woo additional states into expanding their Medicaid programs (the ACA provided for expanding Medicaid, but in 2012 the Supreme Court determined that the expansion was optional for states). The expansion increases the income limits for Medicaid eligibility, providing coverage to individuals and families who make too much money to qualify for Medicaid under current standards but who likely don’t make enough to afford private health insurance. Florida and Texas – the two states where HCA has its largest presence – have thus far declined the expansion. According to Clinton’s campaign website, she plans to devise incentives that might encourage the 19 holdout states to adopt the expansion.
HCA has a strong track record of gaining market share, Torch says. Earnings per share have grown at an annualized rate of 13% over the past five years, and analysts expect that rate to slow only slightly, to 11%, over the next three to five years.
Courtesy Lockheed Martin
Share price: $254.39
Market capitalization: $77.5 billion
52-week range: $181.91 - $256.34
Price-earnings ratio: 20
Dividend yield: 2.6%
Clinton hasn’t released any details about her plans for the Pentagon. But she is generally regarded as more hawkish than President Obama, and her vow to maintain the U.S. military’s top position in the world suggests no hesitancy toward robust defense spending. Clinton has also declared express support for ending sequestration, a system of automatic spending cuts that affects the defense budget, as well as other parts of the federal budget, and continues through 2021.
Lockheed is the world’s largest defense contractor, with 80% of its revenues generated by the U.S. government. U.S. military spending has declined since 2010 because of sequestration and a gradual decline in our involvement in Afghanistan and Iraq. But Lockheed has nonetheless managed to churn out solid results, with earnings per share growing at an average annual clip of 8% over the past five years. Over the same period, Lockheed hiked its dividend at a rate of 17% annualized. The company has done so in part by aggressively cutting costs and in part by reshaping its product line to favor products with better growth prospects. Lockheed is in the process of divesting itself of its low-margin information-technology segment and last year completed its acquisition of helicopter-maker Sikorsky Aircraft.
SEE ALSO: 6 Good Dividend Stocks Yielding 5% or More
Courtesy Marriott International
Share price: $70.12
Market capitalization: $17.8 billion
52-week range: $56.43 - $79.88
Price-earnings ratio: 18
Dividend yield: 1.7%
The U.S. hospitality sector employs millions of immigrant workers. So one potential beneficiary of a win by Clinton, who supports a pathway to citizenship for undocumented immigrants, is hotelier Marriott International.
Marriott is poised to become the world’s largest hotel company upon completing its pending acquisition of Starwood Hotels & Resorts Worldwide for almost $13 billion (U.S. and other nations’ antitrust regulators have signed off on the deal, but the companies are still awaiting a thumbs up from China). The acquisition should yield cost savings by awarding Marriott stronger bargaining power with suppliers, travel agencies and other partners. And increased regulation around the world is limiting the threat posed by websites such as Airbnb and HomeAway.com to the traditional hotel industry. Meanwhile, global tourism spending rose for the sixth straight year in 2015. Marriott’s earnings have grown an annualized 21% over the past five years, and analysts expect them to march on at a 17% annual clip over the next three to five years
Share price: $14.98
Market capitalization: $2.1 billion
52-week range: $13.29 - $31.10
Price-earnings ratio: 6
Dividend yield: 0
Clinton has pledged that if elected she will work to install 500 million solar panels before the end of her first term, in 2021. That would be a boon for SunPower, which makes and sells solar panels to residential, commercial and utility customers and is generally regarded as the industry leader in producing highly efficient panels. One highly visible deployment of those panels is on the Solar Impulse (shown above), an aircraft attempting a global circumnavigation on sun power alone.
The solar market is fickle. The economics of particular projects and markets are largely determined by government subsidies, which can be subject to political whims. For example, although SunPower is currently doing a brisk business selling and leasing panels to U.S. residential customers, for which it earns relatively rich gross profit margins of 23%, those margins are largely dependent on the Investment Tax Credit (gross profits are sales minus the cost of goods sold). The credit had been set to expire at the end of 2016, but late last year Congress extended it in full force through 2019, after which the credit tapers before expiring completely in 2022.
SunPower’s stock has plunged 43% over the past year, suffering from three straight quarters of red ink, completion of profitable projects in California without any comparable new projects in sight to take their place, and the bankruptcy reorganization filing of competitor SunEdison (Symbol: SUNEQ). The shares are cheap and should pop if government policy shifts in SunPower’s favor. But they are only for investors comfortable with taking risks.
QUIZ: How Well Do You Know Dividends?
Courtesy PR Web
Share price: $27.94
Market capitalization: $4.6 billion
52-week range: $23.75 - $42.19
Price-earnings ratio: 9
Dividend yield: 0
Paul Christopher, head global market strategist for the Wells Fargo Investment Institute, sees a Clinton win providing a boost for the housing market. That’s because Democrats generally favor the continued roles of government-sponsored Fannie Mae and Freddie Mac in the housing market. Republicans generally prefer private housing finance to government-sponsored sources, but Christopher says the heretofore sluggish housing recovery is more likely to pick up steam if Fannie and Freddie are left untouched. Based on that reasoning, a Clinton win should favor homebuilders such as Toll Brothers. Its focus on high-end homes is an advantage in the current market. Affluent purchasers typically have better credit, buy more expensive homes and are less sensitive to interest rate changes.
Toll Brothers beat estimates for the quarter that ended April 30, posting earnings of 51 cents per share, or 5 cents more than analysts had expected. Net income of $89 million was up 31% from the same quarter the previous year, and revenue of $1.1 billion was also up 31%. Price-earnings ratios can be unreliable measures of value for companies in economically cyclical industries, such as home building. Take some comfort, instead, that the stock trades for just 1.1 times book value (assets minus liabilities), compared with an industry average of 1.9 times book value.
SEE ALSO: Kiplinger's Economic Outlook -- Housing
Courtesy Wal-Mart Stores
Share price: $74.06
Market capitalization: $230.8 billion
52-week range: $56.30 - $74.35
Price-earnings ratio: 17
Dividend yield: 2.7%
Tax cuts for low- and middle-income earners should benefit big-box retailers such as Wal-Mart. Clinton’s campaign has promised such cuts generally, but it has yet to release details. The candidate has also said she supports raising the federal minimum wage to $12 per hour, which would boost disposable income for lower-income families. Although a higher minimum wage would spell higher expenses for Wal-Mart, Wells Fargo’s Christopher says that, on balance, these policies would help discount retailers.
Wal-Mart’s glory days may be behind it as shoppers increasingly head to the internet in search of bargains. The company suffered its first-ever annual sales decline in the fiscal year that ended January 31, with revenues slipping by less than 1%, to $482 billion. But Wal-Mart has been investing heavily in boosting online sales and is making a serious effort to challenge Amazon.com (and, in particular, its two-day Prime shipping program). In May, Wal-Mart started testing two-day shipping for online customers with ShippingPass, which charges half of Prime’s annual fee.
Wal-Mart is also rethinking its brick-and-mortar strategy. It has been opening more Neighborhood Market grocery and pharmacy stores, where sales growth has been stronger than at its megastores. The annual dividend rate of $2 is secure, and it should continue to provide a floor for the stock as the company retools its strategy. (For more read 8 Reasons to Shop at Walmart Even If You Hate Walmart.)
SEE ALSO: Where Clinton and Trump Stand on 9 Money Issues
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