Donald Trump has undoubtedly been a net positive for equities in the US. The new president’s talk of lower taxes, lower regulation and an economic stimulus programme breathed new life into the shares of banks, energy producers and builders alike. But on this side of the Atlantic I have my fears that Trump’s bombastic attacks on certain industries leaves several UK stocks in danger of being hugely negatively affected by his potential policies.
First up is speciality drug producer Shire (LSE: SHP). What worries me about Trump and Shire is that the he’s been quoted in the press as saying things such as “the pricing has been astronomical” and “you folks [drug companies] have done a very great job over the years but we have to get the prices down.”
And Trump could definitely do something about bringing down drug prices either through direct legislation or giving government-run medical programmes the ability to negotiate their prices with drug makers. This is a common sense move that has somehow escaped Congress’s attention thus far.
This is a problem for all drug makers but is an extra worry for Shire as the company’s business model is based on developing drugs for rare diseases and then charging very, very high prices for the treatment.
Aside from concerns that its products may fetch lower prices, I’m also worried because Shire has taken on a whopping $23bn in net debt to fund a series of huge acquisitions that have made it a world leader in rare disease treatments. If the company’s ambitious sales and profit targets are met this won’t be a major problem, but should Trump take an axe to pharmaceutical prices, it certainly would be.
Rough seas ahead for global trade?
Also at risk of becoming collateral damage to Trump’s policies is ship broker Clarkson (LSE: CKN). It has already seen profits drop in the past year as a slowdown in demand for oil & gas-related ships and an oversupply of cargo vessels have led to low prices for bulk shipping.
The threat from Trump to Clarkson is if the new president embarks on his much-talked-about plan to impose tariffs on trading partners such as Mexico or, more worryingly, China. Were Trump to slap import taxes on goods from China, the Chinese would undoubtedly retaliate, threatening to send the volume of trade between these important partners plummeting.
This would be a problem for Clarkson because its broking services account for more than 85% of underlying pre-tax profits and would be negatively impacted should volumes and the price of cargo shipping fall.
The upside is that as a broker, Clarkson doesn’t own any ships and is paid a commission per deal arranged, so is somewhat protected from any downturn. Indeed, the company has weathered problems in the offshore oil & gas industry with aplomb and remains solidly profitable and has a cash-heavy balance sheet.
But with shares of the company trading hands at a lofty 25 times forward earnings would-be investors would do well to image the potential threat from Trump’s policies before buying shares.
