It's been two years since businessman and television personality Donald Trump has been elected as the President of the United States. During this phase, Trump has taken credit for how well the stock market has performed due to some of his signature policies. However, it wasn't all hunky-dory for the market.
In his first year, stocks scaled record highs, with the tech-laden Nasdaq surging 27% since January 2017, marking the index's best rally under a Republican president, according to Dow Jones Market Data.
But, last year was pretty rough for the stock market. The Nasdaq lost 2.4% in 2018, sharply underperforming its yearly average gain of 6.9%. The broader S&P 500 also shed 4.9% versus an average gain of 5.4% during a similar time frame, while the Dow Jones fell 5.2% compared with a rise of almost 5.5%.
A rough 2018, indeed, dented Trump's two-year performance, with the S&P 500 leaving him with the 10th best percentage gain among the 23 presidents. Compared to Republican presidents, it was the fifth best performance out of 11, data showed.
So, what haunted the markets last year? The Federal Reserve's hiking of interest rates took a toll. The hike in rates, especially, increases the cost of lending money from financial institutions for small and medium business houses. This in turn could exert more pressure on the U.S. economy that is on the cusp of a slowdown this year.
Prolonged trade war with China coupled with the fallout from the partial government shutdown might also cap the market's upside. Needless to say, that these concerns easily overshadowed the benefits of the large tax cuts and deregulatory efforts taken by the Trump administration.
Thus, not all stocks have performed well over the president's two years in office. Still, there are stocks that did outperform the broader S&P 500 during the Trump presidency, which makes them enticing investment picks.
Defense & Tech Stocks Are Big Winners
Defense and tech stocks have gained the most since Trump became the President. Since Jan 19, 2017 the iShares U.S. Aerospace & Defense (ITA) ETF has jumped more than 30%. Meanwhile, the S&P 500 tech sector has risen more than 37%. Both of them, thus, have easily surpassed the S&P 500, which is up 18%.
Defense stocks, in particular, benefited from Trump policy. The fiscal 2018 federal budget saw massive increase in military spending through 2020. Trump assured that despite high profile troop withdrawal by the end of last year, he won't be curtailing military outlays. Rather, he promised to increase spending during a visit to Iraq after Christmas.
Promises of pro-business legislation by Trump have primarily supported the gains for the software industry and the manufacturers of the internal technologies - the semiconductor makers. The House has lowered the corporate tax rate. As a result, tech companies' after-tax earnings improved and led to repatriation of trillions of dollars held abroad by such companies. Tech companies used this extra cash for research and developments, and mergers and acquisitions.
Top 5 Picks
Gains in the ITA were largely driven by The Boeing Company BA , AeroVironment, Inc. AVAV and Aerojet Rocketdyne Holdings, Inc. AJRD . Over the past two years, these stocks have more than doubled. Other solid stocks from the defense sectors that were up nearly 100% during the said period include Axon Enterprise, Inc. AAXN and HEICO Corporation HEI .
We have, thus, selected five sound stocks from these gainers that also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
AeroVironment offers unmanned aircraft systems and related services primarily to organizations within the U.S. Department of Defense. The stock currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 8.8% in the past 60 days. The company's expected earnings growth rate for the current year is 37%, higher than the industry's projected gain of 15.3%.
Boeing designs, develops, manufactures, sales, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services. The stock currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 0.1% in the past 60 days. The company's expected earnings growth rate for the current year is 25.1%, higher than the industry's estimated gain of 22.2%.
Axon Enterprise develops, manufactures, and sells conducted electrical weapons. The stock currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 11.1% in the past 90 days. The company's expected earnings growth rate for the current year is 77.8%, way higher than the industry's projected gain of 6.2%. You can see the complete list of today's Zacks #1 Rank stocks here.
HEICO designs, manufactures, and sells aerospace, defense, and electronic related products and services in the United States and internationally. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 4% in the past 60 days. The company's expected earnings growth rate for the current quarter is 70.4%, higher than the industry's projected gain of 36.2%.
Red Hat provides open source software solutions to develop and offer operating system, virtualization, management, middleware, cloud, mobile, and storage technologies to various enterprises. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 1.2% in the past 60 days. The company's expected earnings growth rate for the current year is 17.8%, higher than the industry's projected gain of 10.7%.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 - 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
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PayPal Holdings, Inc. (PYPL): Free Stock Analysis Report
Arista Networks, Inc. (ANET): Get Free Report
The Boeing Company (BA): Get Free Report
Heico Corporation (HEI): Get Free Report
Aerojet Rocketdyne Holdings, Inc. (AJRD): Free Stock Analysis Report
AeroVironment, Inc. (AVAV): Free Stock Analysis Report
Adobe Systems Incorporated (ADBE): Get Free Report
Red Hat, Inc. (RHT): Free Stock Analysis Report
Axon Enterprise, Inc (AAXN): Get Free Report
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