Today we kick off with our quick take on the US election including some sectors that got a short-term boost in the market, in our Your Stock Our Take Segment and in view of the Trump win, we review a viewer question on TransCanada Corporation (TRP:TSX). And in our Stars and Dogs of the week we review one stock that soared following the Trump win, Corrections Corporation of America (CXW:NYSE) and one that tanked, Community Health Systems, Inc. (CYH:NYSE).
If this is your first time listening, then thanks for stopping by. This podcast is produced every week for your enjoyment and show notes are found at www.keystocks.com. Come back often and feel free to add the podcast to your favorite RSS feed or on iTunes. You can also follow us on Twitter @KeyStocks and on Facebook.
Now, let’s dig into the show.
I would like to welcome again, myhost, KeyStone’s Senior Equity analyst, father of 1, and a man who was not sure what to be more surprised by this past Tuesday, Donald Trump winning the US election or his Vancouver Canucks actually winning a game, Mr. Aaron Dunn.
Intro: Discuss the impact the surprise Trump Win has had on the markets.
- We could discuss why it appears he won – give our takes.
Look, there are so many factors to consider, but if we take a world view of this issue and focus less on Trump and more on the movement behind these political events including BREXIT – his surprise win is likely just the latest chapter in the rise of the anti-establishment movement around the world. Think of it, every major newspaper opposed Trump, and hundreds of millions of dollars were spent to oppose him. Yet he still won convincingly – agree or disagree with what he says – and I disagree with most of what he says, the shocking win was a decisive one and Trump has a mandate.
Hillary Clinton represented the establishment to the anti-establishment movement – period —and all the money she spent do not put even a tiny dent in this perspective. The is entirely underestimated by almost every mainstream news organization – tv, radio, print, and online and perhaps most importantly by the Democratic Party. While many clearly supported Trump, it appears many also held their nose, closed their eyes and marked Trump in the ballot box because he was the only choice not establishment and not Clinton – rightly or wrongly, this was the most important factor.
Aaron’s Take;
What I think coincides with what you said but just from a different perspective. When he won the first things I thought was “wow he really drove people to the polls”. But when we look at the actual turnout, this really wasn’t a great victory for him as much as a great failure on Hilary’s part. The turnout in this election overall was low relative to the last two presidential elections. Trump actually drove a similar number of voters to his cause as Mitt Romney did in 2012 and John McCain did in 2008. So support from the Republican candidate was essentially stable in this election but not really up on a population adjusted basis. But Hilary…her numbers looked abysmal compared to Obama’s in the last two elections. She just wasn’t able to get Democrats to the polls, she did not do a good job of getting minorities to the polls and she didn’t do a great job with women either. It’s crazy to think that with all the attention on this election that the turnout actually declined on both a percentage and absolute basis compared to previous years.
Take a quick look at the market reactions – From the initial huge sell off to the surprise move upwards.
As Trump gained the lead in the electoral vote count, investors became increasingly uneasy and share prices tumbled in Asia, which were open during the election results. Dow futures were down 4% at one point. However, by the time Trump was confirmed the winner and made his speech, financial markets had steadied.
Though uncertainty remains over Trump’s trade, immigration and geopolitical policies, investors appeared somewhat soothed by his victory speech, in which he praised Clinton and urged Americans to “come together as one united people” after a deeply divisive campaign.
The Teflon Don strikes again – apparently all it took was one Kumbaya speech from Trump and threats to rip up nafta, all the doomsday analysis of his light on substance economic plan, and something about building a wall were all forgotten…go figure.
Yes so what I’m sure is on everyone’s mind right now is how to position their portfolios for a Trump presidency. Do you invest in the US markets right now as a Canadian? Do you wait and see what happens? Certainly there are some industries that will benefit and others that will come under pressure.
3) Sectors that have initially benefitted – guns and security related, financials, infrastructure, coal.
While the morning after the US election was volatile, U.S. stock markets shrugged off their losses by midday as the initial shock of the election results wore off and investors embraced the idea of a Trump presidency. Several sectors rallied, including financial and energy stocks, with investors betting that respective industry regulations will be dialed back. Biotech and prison stocks also gained.
Winning and Losing Sectors
Trump Wins, Renewable Energy Investments Lose and Dirty Energy Stocks Surge
The world’s top coal trader Glencore Plc rose more than 5 percent today while the world’s biggest wind-turbine maker Vestas Wind Systems A/S fell about 13 percent, according to Bloomberg. Solar companies First Solar, SunPower and SolarCity were down a respective 6 percent, 17 percent and 6 percent this morning. Shares in European renewable energy equipment makers and utilities with significant investments in the U.S. have fallen as much as 10 percent, Reuters reported.
As Bloomberg warned in its report, “the swing foretells a story of fossil fuels making a comeback, while the fight against climate change—and investment in wind and solar power—languishes.”
Our president-elect—who literally said “the wind kills all your birds” and solar is “not working so good”—has made no bones about his support of dirty energy, from his ties to the controversial Dakota Access Pipeline to his pledge to bring back the dirtiest fuel on the planet, coal.
OIL – prices?
Meanwhile, crude oil prices have wavered between gains and losses as investors are uncertain over the president-to-be’s energy plans. Experts explained that while Trump would likely scale back regulations and encourage drilling, that plan would effectively keep oil prices low due to a global oil glut.
“It probably ends up not being all that supportive for prices because supply will be ample.
4) Sectors that have initially suffered – renewable energy and?
What investor really don’t need to do right now is panic or try to make short-term trades in response to Trump’s win. There are a lot of different scenarios that are possible under the new administration. Some of them will be bad and some of them won’t be bad. In some cases there are real opportunities for Canada. But its really too early to tell right now. Trump takes office at the end of January and the first couple of months are going to be very telling. Will he be the Trump that got elected or will he calm down like he has in recent addresses to the public? We have always been advocates of keeping some capital on the sidelines during uncertain times and this is no different. If you are a Canadian looking to purchase stocks in the US then we wouldn’t advise completely holding off on those purchases but we would definitely keep some of that capital on the sidelines until we see how the market reacts to Trump actually being President. The President also doesn’t decided everything in the US so even if Trump wants to enact certain policies that doesn’t necessarily mean they will actually happen.
Irv comments and introduces Your Stock Our Take.
YOUR STOCK OUR TAKE
For this week’s session of your stock our take we have a question from Bill out of Calgary. He wants to know about TransCanada Corporation and whether or not they will benefit from a Trump presidency.
For those of you who are unfamiliar with TransCanada it one of Canada’s two largest pipeline and energy transportation companies. The symbol is TRP on the TSX. Many of you maybe familiar with the KeyStone XL pipeline (no relationship with KeyStone Financial) which is a major proposed oil pipeline that would connect the Alberta oil market with export markets in the Gulf of Mexico. Going back nearly 10 years, the KeyStone XL pipeline was TransCanada’s major growth project but we haven’t heard a lot about the project over the past 2 years as its prospects were shut down by the Obama administration. With a Trump presidency and Republican senate this projects is more than likely back in play.
So the questions was what this would mean for TransCanada. Obviously it is going to be a net positive them. KeyStone XL is a an $10 billion plus project so it would account for a significant portion of the company’s $50 billion plus portfolio of growth projects. Using a very quick and dirty calculation I’m estimating that KeyStone XL fully up and running might contribute about 35 to 45 cents to TransCanada’s earnings per share. Currently they are at a run rate of adjusted earnings of about $3.20 per share. There’s good growth there but its not necessarily a transformational project for the company as it was several years ago.
I wouldn’t run out and buy a large position in TransCanada right now just because of KeyStone XL. The company is trading at about 20 times earnings which isn’t a horrible valuation for a company of its size and general stability. But when we actively covered the company in the Income stock report we were buying at a slightly cheaper valuation.
But a big concern here is not necessarily what the new Trump administration will do but what the Canadian government will do in response to Trump. Our Liberal government has been pushing a carbon tax which it plans to roll out over the upcoming years. Clearly, we do not expect Trump’s government to do the same. This puts the Canadian energy sector at a distinct disadvantage to the US and I think this is the bigger issue to discuss. Will the Canadian government alter its policy in response to what happens, or doesn’t happen in the US. If they don’t then Canadian oil producers are going to have a difficult time completing with the US.
Segway to our Stars and Dogs Segment –
By noon this past Wednesday, after Donald Trump had claimed victory in the race for the White House, two companies, ironically both selling the same thing – Beds- emerged as the best and worst performers on the NYSE. While they both do in fact sell beds, this was truly a tale of 2 beds with very different ends.
The stock exchange’s worst performer at midday was Community Health Systems. Its biggest winner was Corrections Corp. of America. Their fortunes were a tale of care and punishment.
Now its time for this weeks’s dog.
The Dog
Community Health Systems, Inc. (CYH:NYSE)
Community Health owns more U.S. hospital beds than any other publicly traded company. Following the Trump win, the stock dropped more than 25 percent by noon. Trump has promised to repeal Obamacare – this is likely bad news for Community Health.
A little more about Community Health – The company, through its subsidiaries, owns, leases or operates 158 affiliated hospitals in 22 states with an aggregate of nearly 27,000 licensed beds.
The revenue growth over the last 3-years has been strong – as the company has grown from $12.3 million in 2013 to $19.43 million in 2015.
Cash flow and earnings have fluctuated widely and the company’s Return on Equity is negative. Income was up marginally over the last 3-years.
Stars & Dogs
Corrections Corporation of America (CXW:NYSE)
Corrections Corp. was up more than 40 percent. It leases private prison beds to the government. Its share price had plummeted after the Obama administration in August said it would phase out the use of privately owned cells, the most visible outgrowth of what only recently had been considered a new “national consensus” on mass incarceration.
Trump has promised not only tougher law-and-order policies, despite declines in violent crime over the past 30 years, but also to deport up to 11 million people. Even if he doesn’t succeed in deporting them all, thousands, maybe millions, will need to be jailed during deportation proceedings. One conservative group has estimated that carrying out his pledge would cost $600 billion.
CXW has increased its revenues over the last three years in a tough environment, but income has been lumpy. The company
Third Quarter 2016 Highlights
Revenue of $474.9 million increased 3.3%
Diluted EPS of $0.47 increased 9.3%
Adjusted Diluted EPS of $0.49 increased 8.9%
Normalized Funds From Operations per diluted share of $0.69 increased 7.8%
The company’s latest guidance for 2017 is for lower, EPS and Cash flow – this was issued prior to the Trump win.
We caution on basing long-term investment decisions on the whims of a politician.
Company owns, leases and operates more than 158 affiliate hospitals in 22 states.
Aggregate of 27,000 licensed beds.
Grown from $12.3 billion in 2013 to $19.4 billion in 2015.
Owns more U.S. hospital beds than any other publically traded company.
Following Trump win the stock dropped more than 25% by noon on Wednesday.
