It has been impossible over recent weeks to ignore all of the news flow coming from across the pond regarding the upcoming US presidential election. Despite all the bluster and bravado, there are some key election pledges that could impact FTSE 100 companies in the coming year. Here’s a rough game plan of how I’m planning now.
Big on infrastructure
One common theme from both candidates Trump and Harris is that they are planning on spending big. This is likely in the form of more infrastructure projects across the country.
As a result, I expect FTSE 100 stocks that are involved in this area to do well. For example, I’m thinking about buying Balfour Beatty (LSE:BBY). The company is actively involved in construction and engineering projects in the US at the moment, alongside work done in the UK and elsewhere.
It’s also a leader in doing public-private partnerships (PPPs). This is where the government links up with a private contractor to help fund and execute a project. These can be very profitable, and I’d expect more of these to occur in the coming year based on the efforts of a new president.
The stock is up 48% over the past year. I feel that some of these gains over the past month are as a result of some investors buying ahead of the election. Despite this, the price-to-earnings ratio is only 11.89. So although this isn’t what I’d call undervalued, it’s not very expensive given the jump in the share price.
A risk is that project funding could get delayed, meaning the company wouldn’t actually see any tangible financial benefit for a long time. This could cause some investors to be disappointed and sell.
Energy from different perspectives
Another theme that has been a topic of the campaign is energy. The Harris camp has been vocal on pushing for renewable energy, while Trump is keen on having energy independence. This would involve potentially greater use of domestic oil supplies.
From that angle, I think BP could do well in either outcome. It has been heavily investing in renewable energy over the past few years, including offshore wind and bioenergy. Yet at the same time, it’s still oil and gas that drives profitability, with a strong US footprint.
Focus on defence
Finally, whoever is president, defence will be a key focus in the coming year and beyond. The world is a more dangerous place than it has been for a long time. Spending on defence is likely going to increase.
BAE Systems is one of the leading defence contractors out there. It operates around the world, including in the US, but is listed on the FTSE 100. It’s well placed to take advantage of new orders and contracts that could come through in the coming year.
A risk to all my three themes is that election pledges might not come to fruition after the campaigns finish. Politicians can say one thing and do quite another, so any watered down results or budget cuts might mean the stocks I like underperform.
