Fed's Outlook On Economy To Boost Trump Presidency? 4 Picks

Nobody would like to go long this week as the Brexit debate heats up, which may spark fresh bouts of volatility in the global markets. But barring U.K.’s looming vote, it is the Federal Reserve’s reticence to raise interest rates that is making investors jittery. The Fed’s dovish approach raised doubts about the strength of the economy, and this was compounded by the central bank downgrading its economic outlook for the rest of the year.

A slowing economy works in favor of the Republican Presidential candidate Donald Trump compared to his rival Hillary Clinton, who has recently clinched the Democratic Presidential nomination. An improving economy would have been an endorsement of the performance of the incumbent Democrats, thereby benefiting Clinton. Instead, the currently weak economy should be a shot in the arm for the Republicans. Let’s not forget that Trump has been constantly complaining about the stagnant economy and a shortage of jobs, and if this continues till the Election Day, the advantage may well be his.

Whether Trump will win the presidential race is yet to be seen, but given the weak economic conditions, investors would be naive not to consider a Trump presidency. So if Trump makes it to the White House, there are certain areas such as consumer discretionary, infrastructure, defense and oil where investors would do well to go long.

Dovish Stance, Weak Economic Growth

May’s dismal jobs report kept rate hike in check this month. A number of people also dropped out of the labor force, which isn’t an encouraging sign as well. Fed officials also believe that further interest rate hikes will be less frequent. This reluctance to hike rates is broadly seen as a sign of flagging confidence in the economy.

To corroborate this view, the Fed has downgraded its GDP growth rate to 2% for this year, down from its earlier prediction of 2.3% in March. Given that the Fed is always optimistic in its forecasts, the rates might decline further. The World Bank too expects the U.S. economy to grow at a rate of 1.9% this year, down from 2.4% last year. Slowing economic growth gives Republicans an edge over their rival Democrats. And the face for the Republican Party for this election is none other than Donald Trump. So, let’s have a gauge at the sectors that could benefit from Trump’s policies.

Tax Plans to Benefit Discretionary Stocks, Apple in Focus

Trump’s tax cuts for households will spur economic growth. With more money at their disposal, it is only likely that consumers will spend more on discretionary items. This brings Sotheby's (NYSE:BID) in play as it is a part of the luxury discretionary market. Home improvement retailer, The Home Depot, Inc. (NYSE:HD) is also an interesting play, as Trump believes that homeownership is very much a part of the American dream.

Trump’s plan that no company of any size will pay more than 15% of their business income in taxes also brings companies such as Apple Inc. (NASDAQ:AAPL) into sharp focus. What this will do is that Apple will finally bring its money back to the U.S. According to a study by Moody’s in 2015, Apple had parked more than $150 billion in the overseas market, almost 90% of its total cash.

Infrastructure to Profit Immensely

In several debates Trump has mentioned that the nation will benefit from spending billions in fixing roads, bridges and airports. His intention is not only to put a tariff on foreign goods but also to compel companies to invest more in the U.S. by way of imposing taxes on overseas profits.

Heavy construction companies including Fluor Corporation (NYSE:FLR) and supplier of heavy building materials Martin Marietta Materials, Inc. (NYSE:MLM) will stand to gain. Additionally, Trump promises to build a 50-foot wall on the border of Mexico whose estimate ranges from $15 billion to $25 billion. A likely benefactor of such a move might be construction service provider, Jacobs Engineering Group Inc. (NYSE:JEC) .

Defense to Gain Considerably

Improving military strength has always been a part of Trump’s agenda. Trump isn’t risk averse and is in support of upgrading defense and aerospace technology. He has also pledged to lift the ban on guns. In fact, he has vowed to protect the Second Amendment rights, which clearly states that “the right of the people to keep and bear arms shall not be infringed upon.”

So, the beneficiaries would be high-tech defense and aerospace manufacturers like Lockheed Martin Corporation (NYSE:LMT) , Raytheon Company (NYSE:RTN) and Northrop Grumman Corporation (NYSE:NOC) . A firearm friendly White House is also expected to benefit gun manufacturers like Smith & Wesson Holding Corporation (NASDAQ:SWHC) and Sturm, Ruger & Co. Inc. (NYSE:RGR) .

4 Stocks to Buy if Trump Wins Presidency

Thanks to new labor market related worries, the Fed kept rates unchanged and downgraded the economic growth forecast, which is more likely to help Trump win Presidency. All the sectors discussed above stand to benefit the most if he is elected as the president. Certain oil companies such as Anadarko Petroleum Corporation (NYSE:APC) are also likely to gain as they have more exposure to top U.S. shale plays and its assets aren’t heavily tied to the Middle East. Remember what Trump had said about invariably bombing the ISIS, which would result in a turmoil in oil supply in the Middle East.

Here we have selected four fundamentally solid stocks from such sectors that boast a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy). Additionally, we have narrowed down our search with a VGM score of ‘A’ or ‘B.’ Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Carter's, Inc. (NYSE:CRI) designs, sources and markets branded childrenswear under the Carters and other brands. CRI has a Zacks Rank #2 and a VGM score of ‘A’. The company’s earnings growth estimate for the current year is 11.6%.

The Home Depot, Inc. sells building materials, home improvement products, and lawn and garden products. HD has a Zacks Rank #2 and a VGM score of ‘A’. The company’s earnings growth estimate for the current year is 16.5%.

Laredo Petroleum, Inc. (NYSE:LPI) focuses on the acquisition, exploration and development of oil and natural gas properties in the U.S. LPI has a Zacks Rank #2 and a VGM score of ‘B’. The company’s earnings growth estimate for the current year is 66.3%.

Leidos Holdings, Inc. (NYSE:LDOS) , an applied technology company, delivers solutions and services in the national security markets in the U.S. LDOS has a Zacks Rank #2 and a VGM score of ‘A’. The company’s earnings growth estimate for the current year is also in positive territory.