2 stocks I’d buy before the US election

Can these two stocks offer safety ahead of the US presidential election?

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After months of calm, investors should brace themselves against a possible rise in volatility ahead of the US presidential election. From this week’s stock market sell-off, it’s clear that the financial markets view Trump’s increasing odds of becoming president as bad news.

However, investors need not avoid stocks altogether. Whatever the election result may be, there will be winners and losers. Some industries may even do well under both election scenarios and investors need to bear in mind that no two stocks are the same.

Strong support for defence

The defence industry is one such industry that should continue to thrive no matter who takes the White House next week. With global conflicts on the up and rising geopolitical tensions, both candidates have signalled strong support for more defence spending.

This means BAE Systems (LSE: BA) stands to benefit from the likely post-election increase in the defence budget. The British defence company is the eighth largest supplier to the US Department of Defence and derives 36% of its revenues from the US. It’s also particularly well placed to benefit from further spending trends because it has been expanding into new areas, not just in electronic warfare, but also surveillance and cyber security.

However, investors ought to keep a close eye on potential developments in the Middle East. The supply of military hardware to Saudi Arabia has come under renewed scrutiny following the kingdom’s recent attacks on Yemen. And as Saudi Arabia is BAE’s third largest customer, accounting for 21% of group revenues, any potential ban on sales could have serious repercussions on BAE’s profitability.

BAE currently expects to deliver a 5%-10% rise in underlying earnings per share this year, and shares currently trade at 13.7 times its expected earnings this year.

Better off with Trump?

Meanwhile, G4S (LSE: GFS) could stand to become a major beneficiary from Trump’s proposed immigration policy shift. His strong rhetoric on immigration and his pledge to deport an estimated 11m undocumented immigrants in the US may be a boon for G4S’s security and prison services.

The security company is doing well as things stand. Yesterday, it said it had won new contracts with annual revenues of £1bn and total contract values of £2bn since the start of the year. Also, revenues from continuing operations in the first nine months of 2016 grew by 5.7% year-on-year, to £4.82bn.

These latest figures show the company’s focus on organic growth and cutting costs is beginning to work and G4S is clearly putting past controversies behind it and moving on. Shares in the company currently trade at 14.5 times its expected earnings this year, based on analysts expectations of a 4% rise in underlying EPS in 2016. G4S is also attractive from an income standpoint, with shares trading at a prospective yield of 4.3% this year, with forecasts of dividend growth of 3%.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has a position in BAE Systems. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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