Judging by my Facebook feed, a lot of people are feeling less than bouncy about President-elect Trump. However, there are good reasons for investors to feel bouncy about the prospects for these two UK-listed stocks after yesterday’s election shock.
The right equipment
Last time I looked at equipment rental firm Ashtead Group (LSE: AHT), back in June, it had all the right gear in all the right places, with a share price rising more than 500% over five years. Profit margins were at record highs, while investors were banking a juicy dividend hike and celebrating a £200m share buyback.
Brexit didn’t faze it, quite the reverse. Its key US division Sunbelt contributes about two-thirds of Ashtead’s earnings, and these are worth more once converted back into weaker post-referendum sterling. All this and now The Donald too, whose shock election victory drove the share price up 11.51% yesterday.
Sunbelter
Investors are excited by Trumped-up talk of a $1trn infrastructure splurge, as part of his carefully costed plan to rebuild America. Actually, I was joking about the carefully costed bit, there will be no federal tax hikes to pay for it (tax cuts instead) so we can’t be absolutely certain it will happen. However, that’s the way to bet right now, and Ashtead Group is a good way to play it.
The company’s share price is actually up an incredible 750% over the past five years, yet it still trades at a forecast 12.3 times earnings. The forecast yield of 1.9% is well below the FTSE 100 average of 3.69% but you can hardly complain given the soaring share price, and there’s scope for growth, with cover of 3.8. Ashtead’s price-to-book of 4.7 times is more than double the long-term average of 2.1 times, but it still looks like a Trump card for investors.
All systems go
Defence company BAE Systems (LSE: BA) has also enjoyed turbo-charged share price growth lately, up 115% over five years and 33% over the past 12 months. Again, Brexit helped by upscaling the value of its US earnings, and Trump’s election pledge to “rebuild our depleted military” has done the rest, with the share price flying 6.75% yesterday.
Those who have taken the trouble to cost Trump’s defence pledges reckon 90,000 more soldiers, a 350-ship Navy and 100 more fighters will cost between $500bn and $1trn. Republican hawks in Congress are unlikely to put a block on that, which should lend more firepower to BAE’s elbow. Fellow NATO members may also have to start spending, with reports that Trump will demand they hit the target of 2% of GDP, which just five of the alliance’s 28 member states (including the UK as one of the saintly five) currently do.
Flying high
All this is great news for BAE Systems, especially as it earns 40% of its annual £18bn revenue from the US. It could get another boost if Trump’s anti-Muslim comments drive Gulf arms buyers away from US giants like Lockheed Martin and Boeing into their British rival’s grateful embrace.
Trading at a forecast 13.6 times earnings and yielding a forecast 3.6%, covered 1.8 times, now looks like a good time to buy BAE Systems. Provided you think Donald Trump is a man of his word.
