President-elect Donald Trump is a divisive figure, and it seems that he’ll have a varying effect on different company stocks as well. Here are two that may have good reason to cheer his electoral victory.
On the Hill
Investors in infrastructure and galvanising specialist Hill & Smith Holdings (LSE: HILS) quickly put out the bunting for Trump, its share price rising 8.73% on the day after the election. Yet this UK company has been waving flags for far longer than that, with the stock soaring 82% in the last 12 months and 405% over five years. This week was merely the icing on a very rich cake.
Wednesday’s surge was driven by hopes that the international group would be a major beneficiary of Trump’s promise to splurge $1trn on “rebuilding America”. We all know how fragile electoral pledges are, especially The Donald’s, but this one seems to rest on more solid foundations than most.
The Smiths
In August, chief executive Derek Muir was already talking up the opportunities for road and utility infrastructure development in the UK and US, the two markets that generate around 90% of its revenues. Trump could double down on those US opportunities, and if Chancellor Philip Hammond follows suit by announcing UK fiscal stimulus in this month’s Autumn Statement, Hill & Smith could reap the benefit at home as well.
It has momentum on its side, but although the valuation is expensive at 24 times earnings, that’s forecast to fall to a more reasonable 16 times, helped by 20% forecast growth in earnings per share (EPS) this year, with another 8% predicted for 2017. The forecast yield underwhelms at 2% but it’s covered 2.5 times, and management is progressive, increasing the interim dividend 20% in August. With a forecast price-to-earnings growth (PEG) ratio of just 1, investors in Hill & Smith have a Trump card up their sleeves.
Cardinal Wolseley
Plumbing and heating merchant Wolseley (LSE: WOS) generates 66% of group revenues and 89% of group trading profit from its US business, plumbing supplier Ferguson, and therefore enjoyed a major Brexit boost as the pound slumped against the dollar. This stock has also performed strongly for some time, rising 148% over five years and 26% over the last 12 months. Private investors often snub long-term growth stories like Wolseley because they operate in relatively unglamorous areas, so make sure you’re plugged in.
The company announced job cuts and branch closures in September, citing difficult trading conditions in the UK and Nordics, despite posting a 7% increase in annual trading profit to £917m. It also complained of subdued demand in its core US commercial and residential markets, but Trump’s proposed infrastructure blitz might quickly change that. Five years of positive EPS growth are expected to extend into next year, with a forecast 16% leap in the year to 31 July 2017. This kind of growth prospect doesn’t come at a discount, but a forecast valuation of 16.8 times earnings isn’t overly expensive either.
The forecast yield is low at 2.2%, although nicely covered 2.5 times, giving hopes for progression. Again, Wolseley is a growth rather than income stock right now, and a tempting Trump reflation play.
