The Gloves Are Off - Investing In (Contested) Campaign Promises

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Includes: FLR, GD, LMT, NOC, RTN, TRP
by: Henry Miles

Summary

Donald Trump made various promises leading up to his election having to do with immigration, defense, trade, health care, and tax reform – you name it.

As some of these commitments are now moving into action, they are drawing the attention of interest groups, other policy-makers, the courts, and businesses.

Investors would be well-advised to watch how the president and these stakeholders interact while considering whether and how to reposition their portfolios.

The First One Hundred Days

For those who missed it, Donald Trump made various promises during his campaign on what he would do in his first hundred days in office; here is the list dating back to just after the election but before Inauguration Day. Like him or not, Trump is clearly a man of action and, in a few short weeks, he has already moved forward aggressively on various commitments including:

Moving at Different Speeds

Most well-read investors can scan this list and quickly identify action items that are soon to be underway. For example, strong political interests on both sides of the aisle support higher infrastructure investment and, to a lesser extent, the resumption of construction on the Dakota and Keystone pipelines. Investors should have reacted earlier. However, value may still be found in TransCanada Corporation (NYSE:TRP), owner of Keystone, and Fluor (NYSE:FLR) a prime contractor on pipelines, and other major projects.

On the other hand, there are those who feel threatened by actions President Trump wants to take but for which he does not yet have support. Just this past Sunday, 97 technology companies filed an Amicus Brief - supporting the State of Washington's lawsuit - against the Trump Administration's Executive Order barring travel by some to the United States.

The State of Washington has raised various concerns with the Order, including, notably, that it would hurt people as well as research and business interests in the state (e.g. the University of Washington, Washington State University, Amazon (NASDAQ:AMZN), Expedia (NASDAQ:EXPE), and Microsoft (NASDAQ:MSFT)). The Amicus Brief - signed by giants such as Apple (NASDAQ:AAPL), Citrix (NASDAQ:CTXS), eBay (NASDAQ:EBAY), Facebook (NASDAQ:FB), Google (NASDAQ:GOOG), Intel (NASDAQ:INTC), PayPal (NASDAQ:PYPL), Twitter (NYSE:TWTR), and Yelp (NYSE:YELP) - challenges the constitutionality of the Order and contends that: a) it runs contrary to the history of our country whose very foundation is built on the strength of immigrants, b) immigrants are major contributors to technological discovery and innovation in the U.S., and c) any capricious actions barring them from our country undermines the health of those sectors and, by inference, the vitality of the overall economy. Elon Musk's SpaceX and Tesla (NASDAQ:TSLA) later weighed in support of the Amicus Brief and the list now amounts to over 100 companies.

I add in passing that as a former Chief Information Officer, Interim CIO, and I/T consultant to some sizable firms, I know how critically important foreign/immigrant system professionals are. With apologies for dating myself, before Y2K the unemployment rate of Cobol programmers in a market I served was -17%; that's right, the unemployment rate for these legacy specialists was negative seventeen percent! One of the ways we met our staffing challenge was to recruit and contract Cobolers who had immigrated to the U.S. following the collapse of the Soviet Union.

The same needs exist today but on much more sophisticated levels. With demand for high-tech labor exceeding U.S. supply in areas such as gaming, pattern-recognition, artificial intelligence, robotics, and cyber-security, it is imperative that companies have access to foreign students and guest workers if they are to have any hope of winning - or staying even - with the war for talent. Little doubt that the spectacular coordinated drone technology used in Lady Gaga's Super Bowl halftime show employed the skills of immigrants. Absent continually home-growing hundreds of thousands computer and system engineers, it is simply unrealistic to believe our country will remain a competitive powerhouse without this talent. CEOs and investors have a right to be very concerned about threats to this labor supply.

In still other areas, the Administration is sending mixed messages. For example, notwithstanding his strong support of the military, Trump has said defense contractors are over-charging/gouging U.S. taxpayers. I was concerned enough about this messaging that I decided to cut my positions by half - General Dynamics (NYSE:GD), Lockheed Martin (NYSE:LMT), Northup Grumman (NYSE:NOC), and Raytheon (NYSE:RTN). I realized some good gains dating back to early 2015 and I would have been happy holding these positions longer, but I went 50:50 against my belief that military defense stocks could rise as the result of higher sales, or sag as the result of margin compression. I also backed away from a couple of pharmaceutical companies for similar reasons.

While You're Watching the Fights

For investors who believe that the forces that swept Trump into the presidency may prevail, take time to consider whether they will strengthen or weaken your investment positions. Think about the repercussions. Study up on the opinions of the CEOs whose companies potentially are affected and in which you own shares. As you would for a prize fight, tune in early and stay attentive from round to round, watch the contestants, look for cuts and exhaustion, keep an eye on the corner men and the referees, and gauge the audience for their reaction.

For investors who believe some policies may move forward but others may not, consider whether reallocation is in order. For those who are completely baffled, evaluate whether to harvest some gains and move into cash while waiting for the bout to end and the arena to clear. Remain alert because whatever the outcomes, they could be vital to your financial future.

Disclosure: I am/we are long FLR, GD, LMT, NOC, RTN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Before investing/divesting, always consult a competent financial advisor who puts your interests above their own. (All my proceeds from contributing to SA go to charity.)

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