President Trump recently addressed the Congress in his first State of the Union speech. He emphasized on the achievements made during the first year in office as well as spoke about future priorities. While his business tax cuts boosted small business confidence, regulatory changes worked wonders for banks.
He also said that it’s time to address the nation’s “crumbling infrastructure” and urged the Congress to increase defense spending to build up nuclear arsenal. Hence, it seems sensible to invest in these areas that can make the most of Trump’s presidency.
Small Business Confidence at All-Time High
Trump has promised a “new American moment” in the address. The President claimed that his business-friendly policies helped the economy grow at a steady clip amid geopolitical concerns and raging scandal over Russia’s meddling with US presidential election. He added that “there has never been a better time to start living the American dream” and called for harmony between Republicans and Democrats.
Trump said that the individual tax cuts will provide relief to the middle class, while slashing business tax rate will eventually make American companies more competitive. The corporate tax rate will be lowered from 35% to 21% and will be implemented this year, instead of being delayed until 2019. Small business houses are already benefitting from the tax cut optimism, with small business confidence currently at an all-time high.
As per the National Federation of Independent Businesses (NFIB), the Small Business Optimism Index’s average monthly level came in at 104.8 last year, the highest in the history of the survey. Juanita Duggan, the president and CEO of the NFIB, did claim that increased optimism on massive tax cuts helped small business confidence hit a record high.
More or less three in four Americans approved Trump’s State of the Union address, according to the CBS news poll. At the same time, investors kept an eye on the President’s remarks on financial deregulation, and defense and infrastructure spending.
Banks to Gain From Deregulation & Tax Cuts
In his State of the Union address, Trump boasted his administration’s approach toward deregulation as one of his major achievements. The President said that “in our drive to make Washington accountable, we have eliminated more regulations in our first year than any administration in the history of our country.”
Much of the recent rally in banks stemmed from hopes for government deregulation of the industry. After all, banks have outperformed the broader market since Trump’s election, with Bank of America Corporation BAC almost doubling in that time. Thanks to his deregulation speech, such gains are likely to be maintained in the near future.
Deregulation will free up banks by giving more power to banking authorities and spurring lending activities. Lest we forget, corporate tax cuts will increase bank’s profitability as they face high tax burden. As per KBW estimates, banks such as JPMorgan Chase & Co. JPM, Wells Fargo & Company WFC and Bank of America will enjoy a 20% or more hike in profits if the corporate tax rate is lowered to nearly 20%.
Trump Urges Congress to Boost Defense Spending
Trump has called on Congress to put an end to caps on defense spending so that the United States can modernize its nuclear arsenal. He said that better nuclear weapons are required to counter rogue organizations, terror outfits and countries such as China and Russia. His administration, in the meantime, is coming up with a new strategy to improve the country’s missiles, nuclear bombers and submarines.
Modernization of nuclear arsenal will result in a cost of more than $1 trillion over the next 30 years, something that bodes well for aerospace and defense stocks. Trump has pledged to seek a $54-billion hike in spending on tanks, ships and weapon systems.
Trump Calls for Higher Infrastructure Outlays
Trump has also urged for huge infrastructure spending. He wants to rebuild disintegrating infrastructure, including roads, bridges, highways and railways. This is something that he has been promising since his campaign days.
He wants the Congress to pass a legislation to stimulate a minimum of $1.5 trillion in new infrastructure outlays. He wants the approval process to reduce to two years if not one. Researchers in McKinsey & Company have figured out that such an amount will indeed be needed to fix the country’s infrastructure needs. The American Society of Civil Engineers, however, raises the amount to $2 trillion. Nevertheless, Trump’s infrastructure plan will certainly boost the nation’s builders.
Top 5 Gainers
Trump’s State of the Union speech focused on rebuilding infrastructure, increasing defense outlays, deregulating banking norms and raising small business confidence by implementing tax cuts. Given the positives, doubling down on the hottest stocks from such areas seems judicious. We have, thus, chosen five stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Bill Barrett Corporation BBG is an independent energy company that acquires, explores and develops oil and natural gas resources in the United States. This small-cap company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings soared 44% in the last 60 days. The company’s expected growth rate for the current year is 35.3%, higher than the industry’s gain of 33.1%.
JPMorgan Chase operates as a financial services company worldwide. It operates through Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset & Wealth Management segments. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 14.5% in the last 60 days. The company’s expected growth rate for the current year is 27.8%, higher than the industry’s rally of 21.2%.
The Boeing Company BA manufactures, sells, services and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings advanced 0.4% in the last 60 days. The company’s expected growth rate for the current year is 31.7%, higher than the industry’s gain of 18.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Lockheed Martin Corporation LMT — a Zacks Rank #1 security and aerospace company — engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. The Zacks Consensus Estimate for its current-year earnings went up 3.9% in the last 60 days. The company, which is part of the Aerospace – Defense industry, is expected to post a solid 4.1% return this year.
MasTec, Inc. MTZ is an infrastructure construction company. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 2.6% in the last 60 days. The company’s expected growth rate for the current year is 47.9%, higher than the industry’s gain of 8.9%.
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