This commentary originally appeared on Real Money Pro on Nov. 11. Click here to learn about this dynamic market information service for active traders.
People are still adjusting to the shocking election results earlier this week. Riots or protests, depending on your point of view, are ongoing in several major cities. We have also seen a big rally in the markets, with the Dow standing at all-time highs. The rise has been fueled by massive sector valuations in sectors like energy and financials that have borne the brunt of regulatory efforts over the past several years as well as in biotech and pharma, where fear of new efforts to fix drug prices were keeping those parts of the market significantly undervalued.
Eventually, the protestors will realize that living in a democracy means occasionally accepting election results you don't agree with. The gyrations in the stock market will also lessen as investors wait to see what an actual Trump presidency will mean for sectors of the market instead of just speculating what it could mean.
This will evolve over the coming months and quarters, as a new Congress is seated and the new leadership decides what their key priorities will be. One obvious focus area is construction and infrastructure. Given Mr. Trump's penchant for building things, the aging state of the country's infrastructure and agreement between the two parties that this needs to be addressed, I think this is one of the few bipartisan efforts that is possible early in Mr. Trump's presidency.
This is one reason leading construction equipment play United Rentals (URI) has jumped some 20% in trading this week. I would not be chasing this stock here, but would consider it on any pullback, as it is still cheap at 11x earnings. The election might also be the event that finally gets construction and engineering giant Chicago Bridge & Iron (CBI) off its losing trend of the last few years.
Energy should be another sector of the economy that sees favor in the new presidency, so this concern looks well-positioned at under seven times earnings. Tutor Perini (TPC) does a lot of government-sponsored construction projects and sells at 10x next year's profit consensus. Both stocks have risen this week, but still look like reasonable values.
The major banks have had a "Yuge" rally over the past few days on the prospects of the repeal of Dodd-Frank as well as the likely ebb of new regulatory efforts. This should boost the economy as well as bank lending which has been weak, partly as the result of the extra layers of regulation. Banks still need interest rates to move up to really spur earnings growth, but the possibility for a positive environment on this sector in the years ahead certainly have improved this week.
I like consumer financial services company Synchrony Financial (SYF) with the new lay of the land. The company should deliver at least 10% profit growth next year on a high single digit rise in revenues. The shares are not expensive at just over 10x next year's earnings.
A new presidency always presents a fluid situation as what policies a new administration pursues are always murky at best at this stage of the transition. However, the picks above seem poised to do well under the new administration.