Analyst Brad Hoppmann examines Donald’s Trump’s latest tweetstorm that sharply affected several equities, and concludes that the pullback he created is actually a buying opportunity.
Donald Trump and his Twitter (TWTR) feed are at it again.
Yesterday morning, the president-elect tweeted out his thoughts about defense contractor Lockheed Martin Corp. (LMT) and its F-35 fighter jet program.
Here’s what Mr. Trump said about the sophisticated aeronautical weapon system, in 140 characters or less:
The F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th.
Of course, we all should be used to the impromptu social media messages from the soon-to-be 45th president. After all, he used the social media platform over the past 18 months to battle the media, his Republican primary opponents and his Democratic rival.
Now, President-elect Trump’s Twitter feed is having a direct, material effect on individual companies and their share price.
Today, his Lockheed Martin tweet sent the market capitalization of LMT down by about $4 billion. That translates into more than $28 million per character.
At noon Eastern Monday, LMT shares were down nearly 5%, although the shares did bounce off of their session lows to close 2.5% lower.
That’s the power of a president-elect’s tweet. It’s also something that we, as investors, should take note of.
That’s because those Trump tweets could translate into great buying opportunities in high-quality stocks.
It makes sense that LMT shares would falter based on the immediate, short-term reaction to the Trump tweet.
But I don’t think it makes sense that the entire defense industry sector also saw selling.
Sure, I understand why the value of the ETFs in this segment were down. The PowerShares Aerospace & Defense Portfolio ETF (PPA) and the iShares U.S. Aerospace & Defense ETF (ITA) shed more than 1% yesterday. That’s because those ETFs hold LMT in their respective top-three allocations.
Yet to me, there is far more upside in the defense segment here than there is any downside from a Trump administration and its cost-cutting pencil.
Call me skeptical, but I don’t think the Trump administration is going to immediately come in and try to trim the defense budget. In fact, the opposite is likely true.
Candidate Trump repeatedly said that he wanted to build up the military … increase funding for the troops … and make sure America has the ability to, as he put it, “knock the hell out of ISIS.”
That means more military spending across the board. And that’s going to be good for the likes of Lockheed Martin. Even despite today’s accusatory tweet.
The defense sector also is likely to get a boost from the Trump administration and a compliant Republican Congress. This could be a lot easier to do than most think … and the reason why is a current Obama administration policy that Trump will surely abandon.
That policy is one where every dollar of discretionary defense spending must be matched by a dollar of discretionary domestic spending (i.e. food stamps, community development, education programs, etc.).
If the Trump administration lets go of that requirement, then Republicans in Congress will be able to spend more on beefing up defense. An artificial budget cap will effectively be removed … and that will be great for defense stocks, including Lockheed Martin.
Finally, if you’re an investor looking to take advantage of the renewed optimism in markets since the Trump victory … and you haven’t already entered into many “Trump win” sectors like financials, infrastructure and defense … then the president-elect’s tweet today (as well as his tweets on Boeing (BA) last week) could represent a good opportunity to “buy the dip.”
In the next issue of my Cash Flow Kings newsletter, we will be adding a new position that takes advantage of the current market interplay between the president-elect and the markets.
If you’d like to be there for the opportunity, I invite you to check out Cash Flow Kings today … before my new issue comes out this week. Click here to make sure you don’t miss out on our latest “Trump trade.”
This article is brought to you courtesy of Uncommon Wisdom Daily.