Details of Donald Trump’s economic agenda remain an enigma. Yet there are already enough clues to help investors target companies that should do well in an era of unpredictable policies from the incoming president.
Just days before Trump’s inauguration as US president, investors still don’t know what to expect. The broad contours of Trump’s economic policy are believed to include corporate tax cuts, repatriation of foreign cash, potential protectionist tariffs and a fiscal push toward infrastructure spending. But nobody can say exactly where the line between campaign rhetoric and reality will be drawn, or whether Trump’s administration will be able to effectively navigate Washington’s intricacies—even within his own party.
SEPARATING WINNERS FROM LOSERS
In the meantime, there are ways to get prepared. The following checklist can help equity investors identify holdings that might be well positioned for the uncertainty ahead, and separate winners from losers. Look for companies with:
- Little or no US government business—Trump has already shown that he’s willing to personally intervene in individual company decisions, by pressing Carrier not to move its plant from Indiana to Mexico. In this environment, companies with significant revenues from the US government could be forced to make suboptimal business decisions in order to protect government contracts.
- Product prices that aren’t influenced by regulators—while banks have benefited from expectations of looser regulation, we think regulatory risk still looms with the Trump administration because of his unknown policy directions. Remember how pharmaceutical and biotech stocks fell when Trump told Time magazine in his “Person of the Year” interview that he intended to lower drug prices? Think carefully about holdings that may be exposed to future regulatory moves.
- Normal to above-normal tax rates—Trump’s campaign promise to cut corporate taxes is most likely to get speedy approval from the Republican Congress. While we still don’t know exactly how the tax rates and deductions will be redefined, companies with relatively high tax rates should benefit most.