Profit Strategies for a “Black Swan” Presidency
In 2008, the U.S. elected for the first time as president a black man. In 2016, the country elected for the first time as president…a black swan.
In Wall Street lingo, a “black swan” describes a shocking, unexpected event that carries disproportionately high consequences. A classic example of this rare bird is the global financial crisis of 2008, triggered by the collapse of the sub-prime mortgage market in the U.S.
The latest low-probability, high-magnitude event: the election of Donald Trump to the most powerful job in the world. Love him or hate him, the mercurial real estate mogul poses irregular risks — and opportunities — for your portfolio.
Here’s a quick survival guide for making money and protecting your portfolio, during the initial stages of America’s black swan presidency.
Get ready for precious metals mania…
The street protests in the aftermath of Trump’s election underscore how America remains a bitterly divided nation. As political rancor lingers into 2017 and beyond, you can expect a growing mania for precious metals.
Predictions for gold and silver prices are all over the map, but the consensus is for double-digit gains over the next year.
A particularly attractive gold play is miner Goldcorp (NYSE: GG). Goldcorp boasts production growth and extremely lean operating costs, a combination that should boost profits as the price of gold rises this year as analysts expect.
Goldcorp enjoys many advantages over its more volatile peers, including production growth combined with low cash costs and a strong balance sheet.
If you’re more comfortable with a fund, consider SPDR Gold Shares (NYSE: GLD), the largest gold exchange-traded fund (ETF) backed by physical holdings of bullion.
Another alluring precious metals investment is Silver Wheaton (NYSE: SLW), a “silver streaming” company that provides an advance payment to miners in return for the right to buy a pre-set percentage of their silver production. The company then makes incremental delivery payments as it receives the white metal.
Without exposure to the actual production side of the business, Silver Wheaton is more of a pure play on silver prices, which like gold are expected to rise this year.
If you’re risk averse but still want a play on silver, consider the benchmark iShares Silver Trust (NYSE: SLV).
Beating the war drums…
Before Trump’s surprise election, the Pentagon wasn’t exactly rattling a tin cup for funds. But under a Trump regime, the nation’s already ample defense budget is almost sure to get a massive boost.
That’s great news for Lockheed Martin (NYSE: LMT). As the largest defense contractor in the world, Lockheed Martin is a superb play on persistent demand for military aircraft. LMT shares have enjoyed a post-election tear, as investors realize that a Trump administration would pursue considerably more aggressive foreign policies than its Democratic predecessor.
Overseas hot spots should heat up in 2017 and beyond, especially those involving Trump’s expansionist ally, Russian President Vladimir Putin. Growing global tensions should also benefit aerospace giant Boeing (NYSE: BA), the world’s largest maker of both commercial and military aircraft.
Ultra-sophisticated combat jets produced by Lockheed Martin and Boeing are greatly coveted by warring nations around the world. These aircraft also require continual upgrades, which are expensive and confer high margins for the plane makers.
The more things change…
The more they stay the same. Sure, Trump’s election is an earthquake, but our analysts also remind you that the fundamentals never change.
Ari Charney, chief investment strategist of Utility Forecaster, advises companies as well as investors to stay focused on “future earnings and dividend growth, rather than worrying about a raft of new federal regulations each year.”
As Ari puts it: “The president is not a king. Though the long-term trend has been for power to accrue to the presidency, Congress is still where legislation is written and negotiated.”
And if you’re suffering from political angst these days, he offers a modicum of hope: “Most politicians end up being more pragmatic than their electoral pitches might suggest.”
Jim Pearce, chief investment strategist for our flagship publication Personal Finance, says Trump’s triumph makes select bank stocks good buys now.
Jim asserts: “By a wide margin the biggest winner so far has been the financials sector, based on the presumption that Trump’s administration will adopt a less antagonistic posture towards banks than Clinton’s would have.”
The takeaway: Regardless of your political leanings, you need to remain coldly rational about your holdings. Tune out the political pundits and listen instead to Warren Buffett, who offers this famous piece of advice: “You want to be greedy when others are fearful and fearful when others are greedy.”
Never get emotionally attached to any one investment or desired political outcome. This holiday season, make a point of investing your emotions in your friends and family, where the dividends are higher.
Hey, big spender…
In an email to me this week, reader Neil Buckland offered his personal take on Trump:
“Trump made his name in real estate, so his impact on the real estate and construction markets will be interesting to see during his tenure as president. During the course of the election, Trump made big promises for big spending in the nation’s infrastructure. On his website, the president-elect notes that he wants to transform America’s ‘crumbling infrastructure into a golden opportunity for accelerated economic growth’ with over $1 trillion of investment over the next decade.”
That’s all true, Neil. If Trump makes good on his promise for increased infrastructure spending (and that’s a big if, considering the fiscally austere GOP majority in Congress), construction companies should reap a windfall.
A particularly appealing infrastructure play now is Martin Marietta Materials (NYSE: MLM). Raleigh, N.C.-based Martin Marietta is the country’s leading producer of crushed gravel, sand and stone, which are called aggregates and are mixed with cement to create concrete for the construction of roadways.
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