After an historic US Election victory back in November, Donald Trump will return to the White House today to be inaugurated as the new president.
Investor attention will now turn to Trump’s policies and what they could mean for stock markets and the wider global economy going forward.
While these policies could bring some volatility to markets, they will no doubt also create opportunities.
Here are three share ideas that could benefit.
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Ashtead
Equipment rental giant Ashtead has been feeling the impact of subdued construction activity in the US. There could be more pain for customers in this sector, as some of Trump’s possible policies carry the potential to limit a fall in borrowing costs, drive labour shortages, and boost inflation.
However, we still think that Ashtead is well placed to benefit from an ‘America First’ agenda – particularly through drivers like the onshoring of supply chains and government legislation looking to expand infrastructure and chip manufacturing.
Ashtead's scale and expertise are proving valuable, and the group's taking around 30% market share of these mega-projects in the US. The bigger players have an advantage in the fragmented industry, and the balance sheet's being flexed to snap up smaller players in the space.
Growing the speciality business is also a key strategy (things like scaffolding, flooring and air conditioning). These businesses present a varied income stream for Ashtead which should help provide a little more resilience during downturns.
Debt has risen as investment in expansion continued in recent quarters, but the balance sheet is in reasonable health which means the group can invest to meet the extra demand when appropriate. As mentioned earlier, investment is set to calm in the coming year, as the focus shifts from expansion to cash retention.
We see Ashtead’s plan to shift its primary listing as a small positive, given the opportunity for better valuations and greater access for US investors. UK investors will still have access through a secondary listing on UK markets.
Longer term, we're supportive of the sector with several structural tailwinds underway and we prefer larger-scale names like Ashtead. We continue to expect growth in the top and bottom lines, and still see some upside to the current valuation. But there are no guarantees and missteps will be punished.
Baker Hughes
Baker Hughes is a US-based major equipment and services provider to the energy industry.
A combination of lower commodity prices and cost pressures has seen domestic activity among its oil and gas customers pull back from the heights of the shale boom. Trump’s made no secret that he wants producers to ‘drill baby drill’, but the outlook for US onshore producers remains challenging.
However, the US only makes up around a quarter of Baker Hughes’ revenue. Its expertise in subsea systems leaves it well-placed to benefit from the resurgence in deepwater exploration and development both offshore US and overseas.
Its Industrial & Energy Technology (IET) division has been enjoying the strongest revenue momentum of late, despite a dip in order intake. IET houses the company's gas technology and new energy activities.
A strong growth driver here is the ongoing build-out of liquefied natural gas infrastructure (LNG), where capacity is set to increase by about 60% by the end of the decade.
We’re also supportive of the push to develop and sell more digital solutions across the client base. If Baker Hughes can continue these trends, it should improve margins and revenue visibility.
The order book is close to $33bn, meaning that it can deal with short-term lulls in commercial activity. This makes it less sensitive to energy price fluctuations than oil and gas producers, but it would still feel the impact if prices were weak for a prolonged period.
We're excited about the growth story emerging at Baker Hughes, but that’s also reflected by a valuation towards the top of the peer group. It’s well deserved in our opinion. Investor sentiment has strengthened even further in the wake of the US Election, leaving the shares vulnerable to disappointments.
Microsoft
Microsoft’s launch of the Windows operating system in the mid-80s saw it quickly become a dominant force in the world of software and computer services.
These days, the focus for future growth has shifted towards its cloud platform Azure. There’s still plenty of runway left when it comes to cloud adoption. And the growth trajectory is being boosted by its key role as an enabler for organisations seeking transformation through artificial intelligence (AI).
Microsoft’s significant holding in Open-AI, the creator of Chat-GPT, has enabled it to lead the way in integrating AI into its own software offering. Users of Microsoft Office can now ask the Copilot virtual assistant to create written content, presentations and spreadsheets.
Recent growth rates have continued to impress, and the company is having to spend heavily on building out the infrastructure to accommodate that demand.
The strong balance sheet and huge sums of cash generated by the business means that’s an outlay Microsoft is well-placed to absorb. But, there’s no guarantee that revenue will continue to grow at the same pace as costs and investment, so expect some bumps in the road as this megatrend plays out.
We’re carefully monitoring the regulatory environment as policymakers get to grips with increasingly intelligent machines. The Trump administration might have a lighter touch than the Democrats in this area, but there are no guarantees.
Ultimately, Microsoft is a top dog in the computing world. It’s been at the forefront of several generational shifts which have created strong competitive positions in both personal computing and cloud services. It looks to be well on the path to repeat that again with AI in both the software and infrastructure side of the business.
That’s reflected in a valuation above the long-term average, which means there’s more risk of loss if growth disappoints.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Investments rise and fall in value so investors could make a loss.
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