Four Trump Trades to Benefit From the New President’s First Hundred Days

The election is finally over and we know who the next president will be. We also know that the first hundred days of a president’s term are among the most important. Political scientists agree that the first hundred days of a new president’s term are likely when their power and influence are at its greatest. This is when they have the chance to work with Congress to get things done, before rivalries develop. The deadline of 100 days helps to create a sense of urgency and urgency led to the origination of the term.

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  • Franklin D. Roosevelt was the first to emphasize his first hundred days when he challenged Congress to work with him to take steps that would ease the pain of the Great Depression in 1933. It has since become a tradition that the new president enjoys a short honeymoon to get some ideas before Congress.

    In 2009, President Barack Obama used his first hundred days to ensure the passage of The American Recovery and Reinvestment Act (ARRA), a $787 billion economic stimulus plan that was approved in February 2009. The law’s purpose was to limit the damage from the 2008 recession by spurring consumer spending. Much of the money was dedicated to construction programs that were intended to create high-paying jobs.

    In 2017, it is likely we will see something similar to the ARRA, a stimulus plan intended to jump start economic growth.

    President-elect Donald Trump’s campaign supported $1 trillion worth of new infrastructure construction. The plan relies entirely on private financing to fund improvements to roads, bridges and airports. Trump reinforced the importance of this initiative in his first speech after winning the election, noting, “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.”

    The president-elect’s infrastructure plan is to provide investors with tax credits totaling 82% of the equity amount. His plan anticipates that lost tax revenue would be recouped through new income tax revenue from construction workers and business tax revenue from contractors, making the proposal essentially cost-free to the government.

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  • It’s likely this will serve as a starting point for an infrastructure plan. Trump will be working with a Republican-controlled House of Representatives and Senate. The friendly combination could result in adding federal funds to Trump’s plan, adding billions of dollars in new spending to tax breaks in an effort to jump start the economy.

    Companies that could benefit from infrastructure spending should benefit from this program, assuming it passes Congress, and several companies in the sector are worth considering as investments.

    Chicago Bridge & Iron Company (NYSE: CBI) is an infrastructure engineering firm. They are involved in oil pipelines, nuclear power plants and the new subway station near Yankee Stadium in New York City among other projects.  CBI is a company with strong growth in sales and earnings. Over the past seven years, revenue has grown at an average rate of 11.7% a year. Over that time, earnings per share (EPS) have grown to $2.74 over the past twelve months from a loss of $0.22 a share in 2009.

    Over the past twelve months, CBI’s return on equity (ROE) has been 13.4%. This ratio shows a company’s profitability based on the amount of resources the shareholders have provided to the company (measured as the equity). CBI’s ROE is well above the industry average of 7.1%. Over the past seven years, CBI’s average ROE has been 16.7% and has been fairly steady. This is a sign of a well-managed company.

    The long-term chart shows CBI appears to be bottoming. Momentum, shown as the stochastics indicator at the bottom of the chart, has turned up after becoming oversold. This is often seen at the beginning of up trends.

    CBI is expected to report EPS of more than $4.50 in each of the next three years. At just ten times earnings, the stock would trade at more than $45.

    Nucor Corporation (NYSE: NUE) manufactures steel and steel products. It currently ranks as the largest steel producer in the United States and is the largest “mini-mill” steelmaker. In mini-mills, steelmakers use electric arc furnaces to melt scrap steel as opposed to using large blast furnaces to melt iron. Nucor is North America’s largest recycler of any material and recycled 16.9 million tons of scrap metal in 2015. The company’s stock chart shows NUE could be at the beginning of a new up trend after an extended pullback.

    Analysts expect the company to report EPS of $2.98 in 2017 and $3.30 in 2018. EPS growth is expected to average 20.5% in the future. Growth stocks can be valued with the PEG ratio which defines a stock’s fair value as the price where the price-to-earnings (P/E) ratio is equal to the EPS growth rate. In this case, to find a twelve-month price target, we would multiply 2018 earnings estimates by 20.5. This gives us a price target of $67.65. Earnings should increase and make the stock worth more if Congress approves an infrastructure plan.

    Steel Dynamics (Nasdaq: STLD) is the fourth largest producer of carbon steel products in the United States. Carbon steel is harder and stronger than steel produced through heat treating and is used to make steel wires and springs due to its ability to hold shape memory. Last year, the company produced and shipped 7.7 million tons of steel and the company has a production capacity of 11 million tons of steel. STLD is among the most profitable American steel companies in terms of profit margins and operating profit per ton.

    STLD is expected to grow earnings at an average of more than 46% a year. This estimated rate of growth is faster than the expected growth rate of 97% of all other companies with earnings estimates. Next year, analysts expect EPS of $2.04. Using half the expected EPS growth rate as a target P/E ratio in the PEG ratio formula provides a conservative price target of about $47 a share.

    U.S. Concrete, Inc. (Nasdaq: USCR) produces ready-mixed concrete and aggregates. The company serves customers in Texas, California, New Jersey, New York, Oklahoma, and Washington D.C. USCR provides products like crushed stone, sand, and gravel. The company has 150 standard ready-mixed concrete plants, 16 volumetric ready-mixed concrete facilities, and 14 producing aggregates facilities,

    EPS are expected to be $2.79 this year, increasing to $3.91 next year and $5.08 in 2018. In 2009 and 2010, as the ARRA contributed to increased sales for raw materials suppliers in the construction industry, stocks in the industry traded with an average P/E ratio of 20.9. Using that ratio provides a price target of more than $100 a share for USCR.

    It might seem early, and it might be a bit depressing, to start thinking about 2020 but politicians live in a never-ending election cycle. Many campaign promises are likely to be broken but one, the one related to increased infrastructure spending, is likely to be kept because infrastructure creates good paying jobs and can help politicians get reelected. As that promise is fulfilled, some stocks, like these four, could be winners.

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