We decided it would be fun to take a look at what stocks might be winners and losers under each of the four leading presidential candidates. We focused primarily on their economic and tax plans to look at what changes might affect the investment world. We’ll go through the candidates in alphabetical order by first name – Bernie Sanders (you can read that article here), Donald Trump, Hillary Clinton and Ted Cruz. Before we dive into our picks and pans for a Trump presidency, I want to explain a little bit about how we will approach things.
Throughout this series we are going to assume that candidate’s economic plans, as they are defined now, are enacted as is. Obviously, with a divided Congress, no plan will be enacted exactly as the candidate presents it today. Not only that, if politicians are known for one thing, it’s lying. For all we know these proposals may not even be close to what the candidates actually plan on doing. Additionally, we are also not the “numbers police” and are not here to debate whether a candidate’s numbers add up (you want to enact $9 trillion in tax cuts, go ahead, we will analyze that) and we are not “Very Serious People” deciding whether a plan is “realistic” (you want universal healthcare or a giant wall, we will analyze that). We are going with what the candidates say they will do.
Even though nothing the candidates present as is, the plans usually do at least show the direction that candidates are leaning. For example, Cruz and Trump are proposing huge tax cuts. Is a flat tax really likely to be enacted? No, but it’s likely if elected Cruz would push hard for some type of tax cut. Likewise, is Bernie Sanders' $5 trillion infrastructure plan likely to be enacted as is? No, but if elected he’s likely to push very hard for increased infrastructure spending.
So, although the information about the candidates plans we have to go on is imperfect and subject to change, we still think it’s useful to look at who the winners and losers might be under their plans.
Without further ado, let’s take a look at Trump and what his plans are for the economy.
There seem to be two important cornerstones to Donald Trump’s economic plan. A large $9.5 trillion over 10 years tax cut plan along with promises to protect the American manufacturing sector by renegotiating trade deals and enacting tariffs on foreign goods.
His tax cut plan largely benefits high-income earners. The average middle class household would receive an average tax cut of $2,700 or 4.9%, while the highest 1 percent of taxpayers will see an average tax cut of $1.3 million or 19%. Trump’s plan also drops the tax rate on corporations.
Additionally, like all Republican candidates, he promises to repeal Obamacare. However, his plan to replace it is not substantially different from the healthcare system pre-Obamacare, so there is nothing to analyze in that regard.
Under Trump the economy will likely see higher growth then we have currently do to his “yuge” tax cuts, which are a form of fiscal stimulus. However, since the benefits of those tax cuts are concentrated at the top among high income earners with a lower propensity to consume, the additional economic growth will not be that large. Domestic manufacturing is likely to flourish if trade deals and tariffs are enacted. Conversely, large multinational companies headquartered in the U.S. might be hit with retaliatory tariffs. Let’s take a closer look at who wins and who loses if we have President Trump.
Buy:
“Old school” U.S. manufacturing companies
Trump has consistently criticized free trade deals and has promised to levy tariffs on imported goods as well as negotiate better trade deals. He hasn’t, to my knowledge, offered any specifics on what his idea of a good deal would look like, but if we use his comments on tariffs as a guide, it’s likely that new deals would include substantial protection for domestic industries. We’d likely see a renaissance in U.S. industrial companies as they would have less competition from overseas. Old smokestack industrial companies like United States Steel (X, Financial) or Alcoa (AA, Financial) could do quite well along with other more diversified manufacturers.
Companies that cater to the wealthy
Although Trump’s tax plan cuts taxes for everyone, most of the benefits accrue to the wealthiest 1%. Companies that cater to the wealthy should see an increase in sales. Choosing specific winners is a bit harder as many luxury goods manufacturers derive a substantial portion of sales from China, so U.S.-centric luxury goods companies are hard to come by. The U.S. is still Tiffany’s (TIF, Financial) largest market, but it only accounts for 47% of sales. Movado (MOV, Financial) gets a majority (54.8% of sales) of its revenue from the U.S. but is more of a mass-market luxury goods company. Another idea is Toll Brothers (TOL, Financial), an upscale U.S. homebuilder or perhaps Ferrari (RACE, Financial) or almost all American Tesla (TSLA, Financial).
Cemex S.A.B. de C.V. (CX, Financial)
Trump will be building the greatest wall we’ve ever seen, and that wall will need a lot of concrete. One engineer estimated 8 million cubic yards (triple the amount for Hoover Dam). Since The Donald is going to make Mexico pay for it, then there’s only one choice for the concrete supplier - Mexican building materials company Cemex (CX).
Companies with lots of foreign cash
One of the pillars of Trump’s tax cut plan is a reduced tax rate on corporations bringing home foreign held cash. Shareholders of companies with huge chunks of cash held overseas could benefit nicely from a onetime windfall dividend or stock buyback when the extra cash is brought home (the last one time tax cut resulted in most money being spent this way). Companies like Apple (AAPL, Financial) and Microsoft (MSFT, Financial), just to name a few, would come out as winners.
Sell:
Health insurance companies
This one is a bit more interesting. Trump promises to repeal Obamacare. Obamacare has been a bit of a mixed bag for insurance companies. On one hand it has given health insurers millions of new customers, but on the other hand some groups, of these customers haven’t turned out to be as profitable as the insurers had hoped. Even if the businesses aren’t going as well as executives hoped, losing millions of customers will still be a terrible blow to the companies. UnitedHealth Group (UNH), Aetna (AET), and CIGNA (CI) are examples of health insurers that could suffer if Obamacare were repealed.
U.S. headquartered multinationals
If Trump follows through with tariffs and other extreme trade-protectionism, it’s likely other countries would retaliate. The most at risk would be U.S. based companies that derive a substantial portion of their sales from overseas. Companies like Caterpillar (CAT, Financial), 3M (MMM, Financial), and General Electric (GE, Financial) all derive significant revenue (in some cases a majority) from overseas.
