Jefferies says buy consumer stocks on Trump's 'fiscal relaxation and protectionism'

Published Tue, Nov 29 201611:59 AM EST

The economic policies expected to take place during President-elect Donald Trump 's time in the White House will benefit shares of companies with heavy domestic revenues, according to Jefferies, which on Tuesday released its investment playbook for 2017. Although the full details of Trump's economic plan and size of any spending programs are difficult to assess, policies are certain to tilt toward "fiscal relaxation and protectionism," which would be bullish for the U.S. dollar and other inflationary plays, Jefferies' chief global equity strategist, Sean Darby, wrote in a note to clients. "The unfolding of Trump's policies will occur at a time when wages are increasing. Buy the consumer," Darby said of one of his investment ideas, predicting that a strong dollar and higher discretionary income will boost consumption. Another key investment theme will be a rise in mergers and acquisitions as a potential repatriation of cash and lower taxes will lead U.S. companies to use those funds to expand their businesses through mergers, Jefferies predicts. The investment bank also believes a rotation out of fixed income and into equities will likely prevail throughout 2017. "The good news for equities is that the bond bubble is deflating. The change in temperature for the U.S. economy from monetary stimulus to fiscal has finally changed perceptions over inflation even though we were never in the deflation camp," said Darby. As a result, Jefferies is bullish on those sectors that could benefit from higher wages, a stronger dollar and greater infrastructure spending such as consumer discretionary , financials , health care and materials . "We are not against the defensive sectors given their domestic exposure, but they had become very over-owned on the back of the 'reach for yield' theme and we would expect investors to rotate into more cyclically exposed sectors that offer operational and financial leverage," said Darby. At the specific stock level, Jefferies advises those investors still seeking "sustainable income" dividend plays to buy Wal-Mart , Boeing , Amgen , Valero and Praxair . As a way to get exposure to those potential beneficiaries of an increase in infrastructure spending, the investment bank suggests buying Commercial Metals , Freeport-McMoRan , Nucor , Reliance Steel & Aluminium and United Rentals . "This is a logical time to address the many U.S. infrastructure deficiencies that have become an impediment to a variety of economic activities in the U.S., most notably transportation. The low level of interest rates would make financing relatively inexpensive," according to Darby. Among those potential M & A targets, the strategist points to pharma companies as an area of interest, specially Aclaris Therapeutics , Alder, Pacira and Supernus . He thinks ETF asset manager WisdomTree could also be of interest. "Over the past three years, we have observed an increasing desire by U.S. companies to oligopolize," said Darby, whose analysis suggests this trend may continue. Disclaimer

A trader works on the floor of the New York Stock Exchange (NYSE).

Brendan McDermid | Reuters

Although the full details of Trump's economic plan and size of any spending programs are difficult to assess, policies are certain to tilt toward "fiscal relaxation and protectionism," which would be bullish for the U.S. dollar and other inflationary plays, Jefferies' chief global equity strategist, Sean Darby, wrote in a note to clients.

"The unfolding of Trump's policies will occur at a time when wages are increasing. Buy the consumer," Darby said of one of his investment ideas, predicting that a strong dollar and higher discretionary income will boost consumption.

Another key investment theme will be a rise in mergers and acquisitions as a potential repatriation of cash and lower taxes will lead U.S. companies to use those funds to expand their businesses through mergers, Jefferies predicts.