ChatGPT says these FTSE 100 stocks could benefit from the Trump presidency

FTSE 100 stocks aren’t the obvious beneficiaries of a Trump presidency, but artificial intelligence believes there are several that could prosper.

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To date, the FTSE 100 — the index tracking the performance of the UK’s largest 100 stocks — has largely shrugged off the incoming president’s early policy announcements. However, that’s not to say we won’t see more movement as Donald Trump’s term unfolds, especially if the UK finds itself the target of American tariffs.

And with this in mind I decided to ask ChatGPT, considering its IQ is already higher than my own, which FTSE 100 stocks could benefit from Trump’s policies. The platform provided me with four answers, Ashtead Group, Sage Group, BAE Systems (LSE:BA), and Rolls-Royce (LSE:RR). Today I’m going to focus on the latter two.

Trump’s push on defence spending

ChatGPT selected BAE Systems and Rolls-Royce because they’re the two largest defence contractors in the UK. That’s important because Trump wants the US and its allies to spend more on defence. In fact, he’s called for NATO members to increase their defence spending to 5% of GDP. That’s more than doubling the current 2% target.

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This demand has caused concern among European allies, with many considering it unrealistic given their economic constraints. But while Trump’s push is largely seen as a negotiating target, potentially aiming for a compromise around 3.5%, this would still represent a significant requirement for NATO members to increase defence spending. The ultimate winners here will likely be the defence contractors.

What’s more, UK-based contractors could prosper more than their European counterparts because they’re exempt from ITAR regulations. This exemption, effective since August 2024, allows for streamlined defence trade among AUKUS nations (Australia, UK, and US). UK companies in the Authorised User Community can now operate without US ITAR licenses for specified controlled articles and services. This should reduce administrative burdens and lead times.

Is Rolls-Royce a good investment?

Rolls-Royce is a quality business that has been revitalised in recent years. The company’s three main business units — civil aerospace, defence, and power systems — are all thriving and contribute to a very healthy earnings trajectory.

Interestingly the stock, despite its meteoric rise, is still trading at a discount to its American counterpart GE. While potentially resurgent inflation from Trump’s policy may have a negative impact on demand for air travel — Rolls earns a lot from service-related flying hours of its engines — it’s definitely a stock worthy of much consideration. I would consider buying more but my holding’s already substantial relative to my portfolio.

Created with Highcharts 11.4.3Rolls-Royce Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Is BAE Systems one as well?

The BAE share price is already elevated versus historical levels. And much of these gains happened at the start of Russia’s war in Ukraine. Rather than benefitting from demand for armour and ammunition, the company prospers when nations sign up to long-running defence programmes, like Tempest and AUKUS.

Created with Highcharts 11.4.3BAE Systems PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

One risk is that it doesn’t trade with the normal British discount that we’ve come to expect — it trades with similar valuation multiples to its American counterparts. What’s more, the expected earnings growth rate isn’t as strong as Rolls-Royce. I’ve owned it, sold it too soon, and don’t expect to buy it in the near term.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

James Fox has position in Rolls-Royce Plc. The Motley Fool UK has recommended Ashtead Group Plc, BAE Systems, Rolls-Royce Plc, and Sage Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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