2016 Election Profits Bulletin: Our Top Picks
November 6, 2016, 6:00 am
With select sectors ready to do well regardless of who wins on Tuesday, now is the time to position your portfolio to profit from any post-election bounces. Last time, we talked about five areas of the market that fit this bill. In today’s bulletin, we’ll dive deeper into these sectors and share our top picks – both stocks and ETFs – that we like best to outperform.
Healthcare: There are still some questions surrounding this sector that have continued to pressure stocks, but clarity in the White House could go a long way to providing some relief. Merit Medical Systems (MMSI) is an intriguing healthcare name that makes life-saving cardiology and vascular procedures possible through its relatively low-cost products – making potential government interference doubtful. If you’re looking for a less pure play, Patterson Companies (PDCO) focuses on animal and dental health, which is shielded from pricing problems and other sector concerns. The company is growing revenue in the mid-single digits and expects the consumable dental market to keep improving after its summer slump.
Aerospace & Defense: When it comes to this sector, bigger is better. iShares U.S. Aerospace & Defense ETF (ITA) gives investors exposure to U.S. companies that manufacture commercial and military aircrafts, as well as other defense equipment. Some of its top holdings include industry leaders Boeing (BA), United Technologies (UTX) and Lockheed Martin (LMT), so it’s poised to benefit from big-name sector movements. Speaking of leaders, Boeing (BA) is an attractive play on its own. It is the largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems in the world. BA just won another major U.S. defense contract to develop fighter jet systems and we believe it will continue to be a go-to name for both Washington and Wall Street.
Infrastructure: As we talked about yesterday, both candidates are ready to pour big bucks into improving America’s infrastructure and that means plenty of work for construction material companies. Eagle Materials (EXP) produces construction products and building materials used in residential, commercial and large infrastructure projects, and is also growing earnings at 20%+ annually. Ireland-based CRH plc (CRH) is another provider of building materials to the United States and has an average earnings estimate of 19% the next two years. Other top picks include Granite Construction (GVA), which actually builds the roads, and Quantas (PWR), which is itching to take the electrical grid into the new century.
Automation/Robotics: This is just one area of tech that we like right now and see two attractive plays we want to share with you. The first is ROBO Global Robotics & Automation ETF (ROBO), a basket of 85 stocks from around the globe that are taking this innovative technology to some of the biggest areas in manufacturing, energy, healthcare, security and more. The ETF is also outperforming the S&P by 4X, and doesn’t look ready to slow down. Brooks Automation (BRKS) is another well-rounded pick. The company has 3 divisions: semiconductor automation, life sciences solutions, and cryogenics. Earnings are impressive and its bullish chart is showing an attractive set up with shares pulling back to support ahead of its next leg higher.
Cloud Computing: Neither Clinton or Trump will change the cloud’s domination in corporate IT departments, and there are two plays forming here. Our favorite is Red Hat (RHT), the maker of the ubiquitous Linux operating system that has a presence in IT departments of major corporations. Linux eases the transition to the cloud, and is showing very high growth from an emerging applications business, with revenues up 30% in the most recent quarter. RHT’s EPS will grow 22.5% to $2.24 this year and another 20% to $2.70 next year, and its valuation is reasonable at 20X next year’s EPS estimate considering this amount of growth.
Another, more conservative way to play the cloud is Microsoft (MSFT). The company is growing slower than RHT, but revenues were still up 3% in the past quarter on an adjusted basis. MSFT is helping modernize the PC by moving Windows and Office to web applications, and similar moves are occurring for MSFT’s server offerings for business customers. With plenty of momentum now after the stock was lackluster most of the year, MSFT is a name to consider as you can buy it for less than 20X June 2018 EPS of $3.05.
We hope today’s bulletin has given you some food for thought for you portfolio as we prepare to make the most of the post-election market environment. Some of these names are already in our Buy List while others are on our watch list as we wait for the right opportunities to add them in.
We’ll be talking much more about year-end investment strategies once the votes are in, so stick with us as our special series continues!