Five stocks entering 2017 at the top of their game

 

Following last year’s presidential election the market soared to close out the year near record highs. Sentiment at this time is rather bullish on the outlook of the overall economy and the stock market, but there are plenty of things that could go wrong in 2017 that would result in a market sell off.

Obviously the biggest uncertainty at this point is president-elect Donald Trump. The initial reaction to Trump’s victory, and Republicans gaining control of Congress was positive, driving the markets higher and boosting hopes of strong economic growth.

As bullish as the market reacted to the election, it still remains to be seen whether or not Trump’s economic agenda will actually improve the overall economic landscape, or if his economic plan will result in the nation’s next economic crisis. There have been convincing arguments made for each outcome, but for now most analysts see upside for the market.

With enthusiasm at its current level, you want to make sure to keep your money invested and working for you, but given the general uncertainty of where the economy is headed, you also want to be extra careful with which stocks you add to your portfolio.

A great way to keep your money working, while building in a level of defense, is to focus on leading stocks in sectors with the best chance of enjoying future strength.

While it remains unclear just how well the overall economy will react to Trump’s economic agenda, there are a few sectors that have a strong likelihood of benefiting from his policies.

Let’s take a look at five sector leaders that are must-own stocks in 2017.

Citigroup

Without a doubt, one of the sectors with the best outlook at this point is the financial sector. Rising interest rates are a very good thing for big banks like Citigroup (C), which are able to enjoy significant gains in income from interest they charge on loans they generate for their customers. If Trump’s economic agenda is ale to boost economic growth, that will lead to more business for the big banks as well. Trump is expected to ease some restrictions on the sector as well, which many analysts believe will lead to higher than expected earnings growth down the road. The entire sector rallied in the wake of the election, but there is still reason to expect more gains. Rates are just now starting to rise, but if we see two or three more rate hikes over the next year, which is definitely possible, banks are going to enjoy a nice jump in interest income which will trickle down to the bottom line and drive share prices higher. C has a low P/E of 12.7, with earnings forecast to rise 11.0% during the year.

c170117

Chart courtesy of www.stockcharts.com

Eagle Materials Inc.

Eagle Materials (EXP) produces and sells construction products, most notably cement. President-elect Trump has pledged to make significant increases in federal spending on infrastructure projects, which should lead to higher demand for cement. In addition to wanting to increase spending on general infrastructure such as roads and bridges, Trump also has made it clear that he intends to move forward with his wall on the Mexican border. The project would be very ambitious, and while it remains unclear whether or not the project will actually get started, Trump seems pretty intent on moving forward with the project, which will likely involve a lot of cement. EXP already rallied after the election, but the valuation remains acceptable, with a P/E of 25, and earnings expected to rise 23.7% in 2017.

exp170117

Chart courtesy of www.stockcharts.com

General Dynamics

Another sector that is poised to enjoy big gains from a Trump administration is the defense sector. Big defense contractors like General Dynamics (GD) are in a good position to enjoy earnings growth if Trump follows through on his pledge to expand the U.S. military. Trump has said over and over again that each branch of the U.S. military needs to be expanded and updated, which means a lot of government spending and more contracts being made with the main contractors. GD is trading just shy of its all-time high, but with a P/E of 18.8, and earnings forecast to climb 3.2% in 2017. The growth estimate is lower than we would like, but as Trump moves to boost federal spending on defense, earnings should rise faster than expected.

gd170117

Chart courtesy of www.stockcharts.com

Priceline.com

Consumer discretionary stocks have done well since the election. If Trump’s economic policies are able to boost economic growth as expected by some analysts, it makes sense that people will have more discretionary income to spend on things such as travel. There is also the promise of tax cuts and additional tax credits, which will also boost discretionary income that could easily be spent on travel-related sites such as Priceline.com (PCLN). PCLN shares rallied after the election, and the stock is currently trading just shy of its all-time high. Valuation is a bit high, with a P/E of 39.3, but with earnings expected to rise 17.3% in 2017, the stock has plenty of upside potential during the year.

pcln170117

Chart courtesy of www.stockcharts.com

BP

Oil prices rebounded in 2016, resulting in huge gains for oil and gas stocks such as BP (BP). Crude prices are not expected to rally to the same degree we witnessed in 2016, but crude is expected to remain in a range between $50 and $60 a barrel through the year, versus a current price of $52.65. If we see oil trade higher to the upper end of the $50 to $60 range, oil stocks will continue to build on recent gains, but even if oil remains in its current trading range I would expect oil and gas stocks to trade in sympathy to the overall market. This makes oil stocks fairly safe plays at this time, with little downside risk, and fairly sizable upside potential if we see another big jump in crude prices. It was recently announced that OPEC and a number of non-OPEC nations had reached a deal on production cuts, which should support oil prices in the current trading range, and could provide the catalyst needed to drive crude prices even higher. As such, I like the oil sector, and believe that BP is a solid pick in the sector. The stock currently has a negative P/E, but recent gains in oil prices have helped the company show a profit in each of the last two quarters, and analysts see earnings growth of 132.4% in 2017.

bp170117

Chart courtesy of www.stockcharts.com

Symbols: BP C EXP GD PCLN
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

You May Also Like