Tom Yeung here with your Sunday Digest.
On November 6, we finally got our answer…
Donald Trump will be the 47th president of the United States of America.
Half of all Americans are delighted. Trump has promised everything from lower taxes to stricter migration rules, and Congress appears in a position to let him follow through.
The other half are Googling “How can I apply for Canadian citizenship?”
But no matter what your political leanings are, the question is, “What’s next?”
After all, we know that Donald Trump is a disruptor. His years in leadership were marked with some incredible market gyrations (including a 20% market decline in 2018 and a wild V-shaped recovery in 2020).
The president himself often played a direct role in the volatility. We noted back in 2017, for instance, that Trump helped Boeing Co. (BA) get business and contracts, which the aerospace firm repaid with an under-market-value deal for a newly redesigned Air Force One.
Boeing lost $1.1 billion on that plane… but shares of BA rose as much as 200% before falling back to earth.
We also know that Trump cares greatly about the stock market. The Washington Post once called the Dow Jones Industrial Average “Trump’s favorite metric,” and his speeches are peppered with references to how well he’s done for equities. U.S. markets rose 67% under his watch.
Obviously, this time around looks vastly different from Trump’s first go-around in 2016. Several worldwide conflicts are now raging… the U.S. now produces far more energy than either Russia or Saudi Arabia… conversational AI has been invented… and so on.
You never step in the same river twice.
Still, markets have so far acted on Trump’s win with glee. Shares of the S&P 500 have risen 4% since election results were announced. That’s why I urge you to watch InvestorPlace Senior Analyst Louis Navellier’s latest presentation on the stocks he thinks are most likely to boom during a second Trump presidency.
Plus, I’d like to share five stocks that I believe will do well in 2025 on this newfound momentum.
The Department of Government Efficiency
The incoming president has consistently rewarded loyal lieutenants with top jobs, contracts, and preferential treatment. And though you may love or hate me for saying this, that means Elon Musk’s Tesla Inc. (TSLA) will likely succeed.
Tesla is unusual beast. The tech company has relatively poor earnings quality (it is an automaker, not a software firm), is seeing rising competition (BYD and other Chinese makers), and has a corporate governance structure that should make any Western investor pause.
Quality-value investors will want to steer clear.
Yet, the company’s share price seems to magically levitate. Shares have risen 1,150% over the past five years and are now worth $900 billion, or 100-times forward earnings.
The key to this “wizardry” is Musk’s ability to keep his biggest fans interested. I noted in 2020 that it’s a superpower that’s virtually impossible to replicate, and he’s used this ability to continue raising capital to build ever-more expensive gigafactories.
A second Trump presidency will expand that capability. Musk has become Trump’s highest-profile cheerleader, and the promise of a Cabinet-level appointment will mean the electric vehicle company’s CEO will gain de-facto access to the federal government’s purse strings… if not its regulatory bodies as well. Financing deals will move ahead faster than before, and approvals for projects like self-driving taxis will be far easier to achieve.
Of course, Musk could still get burned by Trump (plenty of others have)… and Tesla remains impossible to value by any traditional metric.
But given the history we know, the most likely direction for TSLA in 2025 is “up.” (Just be sure to sell immediately if Musk and Trump begin falling out.)
The Energy Plays
A second Trump presidency means more oil drilling. The former president oversaw an oil bonanza during his first term and has pledged to expand fracking under a second one.
Playing this boom, however, requires some thought. Dozens of U.S. drillers went bankrupt in 2016 after too much new shale capacity triggered a collapse in prices. A new expansion round might see history repeat itself. In addition, retaliatory tariffs could make America’s liquified natural gas (LNG) exports uncompetitive overnight.
That’s why I’m making two recommendations in this sector to diversify our bets.
1. Kinder Morgan Inc. (KMI). America’s largest pipeline firm is also one its most stable. The company has averaged a 23% operating profit margin over the past five years and consistently generates over $3 billion in annual free cash flow.
KMI’s existence as a pipeline (rather than a driller) gives it a measure of protection against falling prices. The industry tends to charge customers by volumes delivered, so KMI will benefit from greater drilling volumes, even if prices go down. (Longer term profits can decline if too many customers go bankrupt.)
Kinder Morgan also has a significant domestic business that offers a defense against retaliatory tariffs. The firm operates 66,000 miles of natural gas pipelines (40% of the U.S. network), controls 15% of natural gas storage, and is the largest U.S. transporter of independently refined products. America’s domestic energy industry needs KMI simply to get hydrocarbons from wells to refineries.
Then there’s the upside. If retaliatory tariffs on U.S. gas exports do not materialize, KMI will benefit handsomely. The firm already handles 7 billion cubic feet per day of exportable LNG, and Morningstar analysts believe this figure can almost double to 13 billion cubic feet in 2025, given the right price.
That increase would send KMI’s shares skyrocketing. Even before Trump’s win, analysts were expecting free cash flow per share to rise 7% in 2025 thanks to rising spreads in natural gas prices. And given the company’s reasonable 11X forward cash flow multiple (on these lower estimates), don’t be surprised if KMI sees shares rise by 20% or more next year.
2. Halliburton Co. (HAL). America’s second-largest oilfield-services company offers even greater upside. The Houston-based firm is an essential player in the fracking industry, specializing in the pressure pumping services that bring hydrocarbons to the surface. Analysts at Spears & Associates believe Halliburton handles a quarter of all American frac spreads.
A second Trump presidency promises to spur greater demand for new wells. The president would likely roll back rules regarding methane emissions, release a half-million acres of Alaskan federal land for drilling, and restart approvals on new LNG exports. All this would be a net positive for Halliburton’s business. Wall Street analysts were projecting a 9% increase in earnings per share even before Trump was elected. These figures will almost certainly get revised up over the coming weeks, increasing the firm’s fundamental value.
That said, it’s impossible to know exactly how much Trump will be able to influence drilling demand. Energy firms continued to expand production during the 2021-2024 period, despite efforts by the Biden administration to rein in carbon emissions; it’s unclear whether undoing these rules will have much of an effect either.
Smart investors will avoid smaller players like NOV Inc. (NOV) that have greater downside risk for that reason.
That’s why I’m favoring Halliburton’s high-earning business. And with shares trading at under 10 times forward earnings, valuations offer significant downside protection in case things don’t go as planned.
The Bitcoin Kings
Finally, it’s hard to mention Trump without talking about Bitcoin (BTC), which saw prices rise as much as 7% to $75,000 in the hours after his election win. Crypto enthusiasts have long courted the former president, and speculators are now banking on fewer regulations and less taxes.
There are admittedly a lot of low-quality companies in this space. I have long worried about Bitcoin mining firms like Riot Platforms Inc. (RIOT) and MARA Holdings Inc. (MARA) because of their high capital expenditures and leveraged exposure to crypto prices. These stocks traditionally go up a great deal before crashing back to Earth. So, I generally avoid these picks despite their potential upside.
However, two firms stand out for their wider moats and greater staying power:
1. Coinbase Global Inc. (COIN). The largest U.S.-based crypto exchange is also one of the industry’s most profitable players. Analysts expect Coinbase to generate $1.5 billion of profits this year, a 26% margin. A Trump victory now suggests two things will happen. Firstly, rising Bitcoin prices will likely bring users back to the trading platform, further increasing profits for Coinbase and raising its share price. Secondly, regulatory risks are diminishing. Securities and Exchange Commission (SEC) Chair Gary Gensler sued this crypto exchange last year for allegedly selling unregistered securities; he will now likely be replaced with a more crypto-friendly head who will drop ongoing lawsuits.
2. Robinhood Markets Inc. (HOOD). The mobile trading app has long thrived on volatility, especially among meme stocks. A second Trump term will likely re-create much of the 2020 excitement around small cryptocurrencies like Dogecoin (DOGE) and others. The replacement of Gary Gensler as SEC chair is also a net positive for Robinhood, which is branching out into less-regulated businesses like 24-hour trading and betting on events.
These two firms represent the best crypto plays I can currently highlight. Though prices of Bitcoin will remain volatile, these trading platforms will likely thrive on the asset’s widening fanbase.
Closing Thoughts: The Companies You Most Expect
There’s often a temptation to overcomplicate investing. The top hedge fund managers spend millions of dollars on buying the best research… hiring the top analysts… and even paying for the occasional illegal insider tip.
Indeed, investing can sometimes turn into a complex game of knowing more than the market.
That, however, is not always the case.
One reason for Donald Trump’s enduring popularity is his relative openness about his intentions. In 2016, he talked about rolling back environmental regulations, cutting taxes, and quickly making it clear he was a transactional person. It shouldn’t surprise many that the Top 5 S&P 500 stocks the year following his 2017 inauguration were:
- NRG Energy Inc. (NRG): +132%
- Align Technology Inc. (ALGN): +131%
- Vertex Pharmaceuticals Inc. (VRTX): +103%
- Wynn Resorts Ltd. (WYNN): +95%
- Boeing Co. (BA): +89%
Besides the two healthcare companies (which often rise due to internal factors), we had NRG benefiting from cheaper energy prices, Wynn rising thanks to significant tax cuts, and Boeing surging thanks to its strong personal connections with the president. You didn’t have to be a hedge fund boss to pick three-fifths of the 2017 winners.
This time around, Trump has been even clearer about his intent. And though not every campaign promise will be kept, the broad strokes are already plain to see.
For his part, Louis Navellier is saying that a Trump presidency means a second boom is coming for AI stocks… starting as soon as inauguration day.
And he has six specific AI stocks in his crosshairs.
I’ll see you back here next Sunday.
Regards,
Thomas Yeung
Markets Analyst, InvestorPlace