Backchat: The stocks to dump with Trump; evaluating value investing

Many investors feel this is a good thing; Trump’s multitude of statements denying the reality of the impact of Covid-19 and increasing disregard for even the basics of his job have threatened to leave the US economy in very bad shape. 

 

But the departure of a president who was a shameless promoter of low taxes, fossil fuels and isolationism will not benefit everybody. 

 

The most obvious likely loser? Trump’s favourite method of mass communication. 

 

“I imagine Twitter’s stock price is going to tank after Trump goes,” the chief investment officer of a regional asset owner quipped to AsianInvestor. The president’s ceaseless need for attention was directed almost entirely through the micro-messaging social media platform. 

 

Trump could be relied upon to tweet controversial announcements, obnoxious claims and deceitful opinions on an almost daily basis. These ginned up supporters and opposers alike; Twitter benefited greatly from a surge in ‘doomscrolling’ viewers. 

 

Indeed, media in general profited from the four-year Trump Show. A return to a semblance of normality under the less exciting Joe Biden could well mean the viewing figures of the likes of CNN, MSNBC drop off, while the subscription rates of the New York Times and Washington Post, among others, could slip downwards after some blockbuster years.  

 

Coal companies and oil explorers and possibly fracking companies, given an easy ride under the Trump administration, are also likely to see their futures looking bleaker as pollution regulations become tougher. 

 

Gunmakers are one set of companies likely to benefit. Claims that “they’re coming to take your guns” have become almost a mantra for Republican politicians and the National Rifle Association upon the ascension of a Democratic president. 

 

As always, fear sells. 

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ESG GONE MAD? 

“I don’t see value in many parts of ESG. Some of my fund managers can tell me on average that I’ve been exposed to 1.2 slaves in my investment mandate. I don’t see how that offers any return value for me whatsoever; it just seems a cost drag”

A head of private debt at an Asia Pacific pension fund was unimpressed by some of the levels of analytical depth some environmental, social and governance-conscious funds go to in their efforts to show some of the exposures of investment portfolios.

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REVAMPING VALUE INVESTING?

 

Value-focused stock funds have had a notoriously poor run over the nine years. 

 

The big, safe, comfortable brands that famed US investment manager Berkshire Hathaway and others liked to buy at prices lower than their asset value fell increasingly out of favour as disruptive technology companies began stealing their lunch, or – in the case of fossil fuel producers – suffered from a turn to sustainability. 

 

This decline was compounded by Covid-19, which hammered airlines, tourism companies, banks (defaults and bankruptcies are on the rise), property firms and – again – energy businesses. 

 

Instead, online e-commerce companies, gaming firms and logistics companies have benefited from the stay-at-home mandates of western nations. They already enjoyed more favour, courtesy of their intangible value – research and development, algorithms, smart branding. These have been hard for value investors to effectively model. Indeed, many such investments are recorded as balance sheet costs.  

 

Are so-called ‘value’ companies now sufficiently cheap that they could rebound? Yes. But not all. 

 

The distribution of vaccines in 2021 will hopefully allow people to start eating out more, buy some clothes, catch a show, or go on holiday. That should benefit some traditional, cyclical and asset-heavy value companies. 

 

But in truth, it will likely take two years or more for consumption returns to 2019 level. The trick for investors will be to spot value companies with fundamentally healthy business models, versus firms that have been mortally wounded by e-commerce. 

 

Avoiding the latter will be vital. The end of Covid-19 is finally in sight, but more high street retailers, entertainment groups, airlines and energy firms are likely to end up among its victims before it recedes.