Tuesday, May 10, 2016

Investors: What to do if Trump gets in?

As investors we need to seek out the beneficiaries of a possible Trump presidency.

One choice would be to buy the companies that would build a wall along the U.S. Canadian boarder – to keep the Americans out. I see that SNC-Lavalin Group Inc. (SNC) printed a new 52-week high and Aecon Group Inc. (ARE) also had an up day on good volume.

In reality the wall strategy is a goofy idea because neither country has the money to fund such a silly project. I guess SNC and ARE were up for other reasons.

A few weeks ago I wrote this item for BMO Asset Management Inc for posting on their BMO Canadian ETF Dashboard web site –

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Bill Carrigan, CIM, Technical Analyst, GettingTechnical.com
Will that be guns or butter?
Summary of Recommendations:
BMO S&P/TSX Equal Weight Industrials Index ETF (Ticker: ZIN)

Paul Anthony Samuelson was an American economist and the first American to win the Nobel Memorial Prize in Economic Sciences. His textbook Economics (ISBN- 0-07-0 092863-0) has become a classic in which he states in a chapter entitled “Central Problems of Every Economic Society” that a nation has to choose between two options when spending its finite resources. It may buy either guns (invest in defense/military) or butter (invest in production of goods), or a combination of both.

U.S. President Lyndon B. Johnson used the phrase to catch the attention of the national media, while reporting on the state of national defense and the economy. Another use of the phrase was British Prime Minister, Margaret Thatcher's reference in a 1976 speech that, "The Soviets put guns over butter, but we put almost everything over guns.”

When it relates to investing – there are three strategies.

1. We can invest in the sector beneficiaries of guns over butter, such as Materials, Energy, Technology and Industrials.

2. We can invest in the sector beneficiaries of butter over guns, such as Financials, Consumer Discretionary, Consumer Staples, Health Care or Industrials.

3. We can also invest in both because there is one sector common to the guns and butter choices: Industrials. Investors can now enjoy one investable product: the BMO S&P/TSX Equal Weight Industrials Index ETF (ZIN), a diverse basket of cyclical companies that includes Railroads, Aerospace, Infrastructure and Engineering Companies.

The BMO S&P/TSX Equal Weight Industrials Index ETF (ZIN) has been designed to replicate, to the extent possible, the performance of the S&P/TSX Equal Weight Industrials Index, net of expenses. The Fund invests in and holds the Constituent Securities of the Index in the same proportion as they are reflected in the Index. ZIN gives investors exposure to companies engaged in Construction and Engineering, Aerospace and Defense, Trading Companies, Railroads, Airlines, Trucking, Industrial Machinery, and Marine Parts.   

The chart below shows long-term plot of the S&P/TSX Industrial Index, which is a reasonable replication of the S&P/TSX Equal Weight Industrials Index. The long-term primary trend line joins the significant lows of early 2009, mid-2011 and the recent 2016 lows – all investment opportunities.

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Now today I still agree with the Gums & Butter issue but why not drill down into the sector and seek out the Aerospace and Defense names – just in case Trump wins in November?

In the U.S. there are lots of aerospace & defense related companies - Lockheed Martin Corp (LMT), United Technologies Corp (UTX), Honeywell International (HON), Boeing Co/The (BA). General Dynamics Corp (GD), Raytheon Co (RTN) and Northrop Grumman Corp (NOC). Many of these names are at or close to new 52-week highs.

The related ETFs are the iShares U.S. Aerospace & Defense ETF (ITA) and the PowerShares Aerospace & Defense Portfolio (PPA) :

In Canada the choices are slim with a few thin traders – such as Magellan Aerospace (MAL) and Heroux-Devtek Inc (HRX). We are left with CAE Inc (CAE) a liquid pure aerospace play. Our chart – monthly of CAE displays a pending new bull cycle and a point & figure (not included) predicts blue sky on a break over $16.50. By the way – CAE is a component of the S&P/TSX Industrial Index

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