The American market celebrates the victory of the Republican candidate. Investors often associate the Republican Party as much more “market friendly”. During Donald Trump’s first presidency, the economic focus was on tax incentives, deregulation and protectionist policies.
The 2017 Tax Reform reduced corporate taxes to 21%, encouraging investment and consumption. In terms of deregulation, Trump eliminated restrictions in sectors such as finance and energy to facilitate business growth. These pro-market measures, focused on internal growth and competitiveness of companies, were well regarded by investors and stimulated the market for most of his term.
Before deciding which assets to invest in, history shows us the sectors that performed best during his first government. Among those with the greatest return were technology (XLK +179%), consumer discretionary (XLY +112%) and health (XLV +82%), while those furthest behind were energy (XLE –28.67%), commodity consumption (XLP +39.13%) and financial (XLF +44.77%).
Cedears: the stocks with the greatest potential under the presidency of Donald Trump
We believe that Trump will again come with policies of tax reductions and deregulations, both for companies and citizens. Considering this, we see that, Both the technology and health sectors can benefit again.
The health sector, where we find Cedears of big players such as Johnson & Johnson (JNJ), Unitedhealth (UNH) and Merck & Co. (MRK), can benefit from both deregulations in the sector and the continued aging of the US population, which generates stable and growing demand for health products and services.
During the Trump administration, the health sector benefited from policies that facilitated the approval of generic drugs, encouraging competition and generating favorable margins for large pharmaceutical companies. In addition, the focus on deregulation and cost reduction for companies in the sector is expected to continue, favoring innovation in biotechnology and medical devices.
On the other hand, The technology sector is another great candidate to be driven by Trump’s policies. If Trump persists with an agenda of tax incentives and deregulation, this industry could continue to lead, driven by advances in Artificial Intelligence (AI), cloud computing and cybersecurity, strategic areas in which the US seeks to maintain its global leadership, even more so taking into account the progress that China has made. In this sector, the Cedear that we like the most and its valuation seems attractive to us is Alphabet (GOOGL), the Google stock. This company is financially healthy, it is one of the market leaders, it is at the forefront of innovation and we believe that it will be key to the current development of AI and the cloud.
Summarizing everything stated above, we position ourselves in companies that have good valuations, are financially solid and have historically responded well to pro-market Republican policies. Both Google, Johnson & Johnson, UnitedHealth and Merck & Co. can benefit in a scenario of fiscal stimuli and deregulation.
Research analyst at Cocos Capital
Source: Ambito
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