Details of Donald Trump’s economic agenda remain an enigma. Yet there are already enough clues to help investors target companies that should do well in an era of unpredictable policies from the incoming president.

Just days before Trump’s inauguration as US president, investors still don’t know what to expect. The broad contours of Trump’s economic policy are believed to include corporate tax cuts, repatriation of foreign cash, potential protectionist tariffs and a fiscal push toward infrastructure spending. But nobody can say exactly where the line between campaign rhetoric and reality will be drawn, or whether Trump’s administration will be able to effectively navigate Washington’s intricacies—even within his own party.

Separating Winners from Losers

In the meantime, there are ways to get prepared. The following checklist can help equity investors identify holdings that might be well positioned for the uncertainty ahead, and separate winners from losers. Look for companies with:

• Little or no US government business—Trump has already shown that he’s willing to personally intervene in individual company decisions, by pressing Carrier not to move its plant from Indiana to Mexico. In this environment, companies with significant revenues from the US government could be forced to make suboptimal business decisions in order to protect government contracts.
• Product prices that aren’t influenced by regulators—while banks have benefited from expectations of looser regulation, we think regulatory risk still looms with the Trump administration because of his unknown policy directions. Remember how pharmaceutical and biotech stocks fell when Trump told Time magazine in his “Person of the Year” interview that he intended to lower drug prices? Think carefully about holdings that may be exposed to future regulatory moves.
• Normal to above-normal tax rates—Trump’s campaign promise to cut corporate taxes is most likely to get speedy approval from the Republican Congress. While we still don’t know exactly how the tax rates and deductions will be redefined, companies with relatively high tax rates should benefit most.
• Little dependence on imports—if a trade war breaks out, US companies that depend heavily on imports could see their input costs soar, which would undermine profitability.
• Products not vulnerable to a trade war—should the US end up in a trade war with China or some other large trading partner, companies with big businesses there could find themselves in a pickle. Some major US fast-food chains and technology groups generate a meaningful proportion of sales and profits in China—and could end up banned by the world’s most populous nation if things get ugly.
• Little debt on their balance sheets—it’s always good to scrutinize a company’s balance sheet before investing. This could become even more important if Trump’s proposals to disallow interest payments as a deductible expense are put into action. Companies with heavy debt burdens could suddenly find themselves with a new challenge to profits.
• Domestic job-creating potential—companies that create American jobs could enjoy preferential treatment under the new administration.

Even without the policy details, we’re already seeing the impact of Trump’s policy direction. Automakers have been impacted by Trump’s tweets indicating that a border tax could be imposed for cars produced in Mexico for sale in the US. Ford shares were volatile after the carmaker was called out for its plans to build a plant in Mexico; the shares ultimately rose when the company announced it would cancel the plant and move production back to Michigan. And shares of railway operator Kansas City Southern have been hit by concerns that its business bringing goods from Mexico to the US is under threat. While the outcomes here were mixed, investors ideally don’t want government influencing corporate policy, in our view.

Flying Under the Radar

Yet there are companies that could do well in the Trump era. Fast-food chain Chipotle fits all of the seven criteria on our checklist. Charles Schwab, while benefiting from the higher rates post-election, is also well positioned. ADP, which provides software and services for human resources management, screens well for the new environment.

Of course, selecting stocks won’t really be changed by a new administration in Washington. Fundamental research into a company’s business drivers, competitive landscape and earnings dynamics is still the bedrock of stock selection for any portfolio. And companies that score high on our checklist might not qualify for a portfolio on other criteria. But since we may be in for a period of political intervention in market forces, we believe that strong investment candidates that can fly beneath Trump’s tweeting radar—or benefit from his policy changes—have a better chance of outperforming over the next four years.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.