Love it or hate it, Donald Trump is now the president of the US. Trump wants to “make America great again” and he has a number of ideas as to how he’ll go about doing this. Can UK investors benefit? Absolutely. Here’s a look at two stocks that I believe could outperform while Trump is at the helm.
Infrastructure spending
“Nobody can build better than I can. Nobody knows construction better,” declared Trump defiantly in an interview last year. If there’s one thing we know about the new president, it’s that he wants to go large on infrastructure.
Trump sees infrastructure as a “golden opportunity for accelerated economic growth and more rapid productivity gains” and he has plans to spend $1trn on a variety of infrastructure projects in the coming years.
This means infrastructure stocks are likely to benefit and we’ve already seen FTSE 100 equipment rental company Ashtead Group jump 30% since Trump won the election. Given Ashtead’s considerable rise, I believe that it might be wise to look at other less mainstream infrastructure opportunities and one company that has caught my eye is £602m market cap Keller Group (LSE: KLR).
Keller is the world’s largest independent ground engineering specialist, and focuses on providing technically advanced and cost-effective foundation solutions. The company is a key player in the US, and generates 54% of its revenues from this region.
It’s had a rough time of late, warning in October that full year 2016 underlying results would be around 15% below current market expectations, mainly due to underperformance in the Asia Pacific division. However with Trump about to fire up infrastructure spending in the US, could this be the catalyst it needs to turn things around?
Earnings for FY2016 are expected to come in at 78p, rising to 92p in FY2017. That means Keller is trading on a forward looking P/E ratio of 10.7, falling to just 9.1 for the following year. The company also looks appealing from a dividend growth perspective, with the dividend payout having risen from 22.8p in FY2012 to 27.1p in FY2015, a trailing yield of 3.2%.
With Trump wanting to build highways, bridges, airports and hospitals, ground engineering services are likely to be in high demand and I believe Keller looks well placed to benefit.
Defence spending
Trump’s pledge to increase US defence spending could also provide upside to the European defence sector and one stock that looks poised to capitalise is BAE Systems (LSE: BA), being a key supplier to the US Department of Defence.
Although BAE Systems shares have jumped around 10% since Trump’s election victory, I don’t believe they look overpriced at current levels. City analysts forecast earnings of 40p per share for FY2016, meaning the company trades on a forward looking P/E ratio of 15, which seems reasonable given the FTSE 100 is trading above 7,000 points.
Several brokers believe the share price can run further with analysts at Bernstein, Goldman Sachs and JP Morgan placing price targets of 720p, 697p and 665p on the stock respectively. And with the defence contractor currently yielding a robust 3.5%, the stock looks like a sensible portfolio holding while Trump is in charge, in my opinion.
