Why Trump May Actually Be Great for Technology Stocks

One thing that spun the head of tech investors around was the swift and huge sell-off in the sector after Donald Trump won the presidency. The swift and brutal sector rotation was blamed on the potential for trade issues, and some of the very heated rhetoric Silicon Valley executives directed at the president-elect during the campaign. With a week since the election behind us, some are now feeling that the worries may have been overblown.

A new RBC research report makes the case that there are actually numerous reasons for a positive outlook, though the report does cite trade issues with both China and Mexico as potential headwinds. Specifically it points to four reasons why tech could actually benefit from the election outcome:

1. Infrastructure spending stimulus
2. Reduced corporate taxes
3. Cash repatriation tax reform
4. Military spending

The RBC team sees numerous top companies as winners due to the reasons mentioned above, and we highlight the four in the firm’s coverage universe that they feel are most likely to benefit. All are rated Outperform.

Amphenol

This is the top pick in the sector and has remained a favorite at RBC for some time. Amphenol Corp. (NYSE: APH) is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors, interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable.

Amphenol designs, manufactures and assembles its products at facilities in the Americas, Europe, Asia, Australia and Africa and sells its products through its own global sales force, independent representatives and a global network of electronics distributors. The company has a diversified presence as a leader in high-growth areas of the interconnect market, including: automotive, broadband communications, commercial aerospace, industrial, information technology and data communications, military, mobile devices and mobile networks.

The analysts feel that all four of the reasons listed for a positive outlook affect this company at least moderately. Shareholders receive a 0.95% dividend. The RBC price objective for the stock is $69. The Wall Street consensus price target is $68.27. The shares closed Wednesday at $67.80.

Apple

This technology giant has had a rough year, still down over 10% from highs posted in the summer of 2015, in a market making new highs. Apple Inc. (NASDAQ: AAPL) revolutionized personal technology with the introduction of the Macintosh in 1984, and it is among the leaders in the world in innovation with the iPhone, iPad, Mac, Apple Watch and Apple TV.

Apple’s four software platforms — iOS, OS X, watchOS and tvOS — provide seamless experiences across all Apple devices and empower people with breakthrough services, including the App Store, Apple Music, Apple Pay and iCloud.

RBC cites the company’s gigantic cash position and noted this in the research report:

The main benefit here would come from lower taxes and more so the cash repatriation given Apple’s $230 billion+ cash reserve, 90%+ of which is offshore.

Both Trump and Congress have indicated they want to lower the tax rate on repatriating cash back to the United States, with some seeing the rated dropped to as low as 8% to 10%.

Apple investors receive a 2.13% dividend. RBC has a $125 price target, and the consensus target is higher at $130.91. The stock closed trading on Wednesday at $109.99.

CDW

CDW Corp. (NASDAQ: CDW) came back from private equity land with a highly anticipated IPO in 2013 and has been a very strong stock over the past three years. The company provides IT products and services to business, government, education and health care customers in the United States and Canada. It offers discrete hardware and software products to integrated IT solutions, such as mobility, security, data center optimization, cloud computing, virtualization and collaboration.

This company is one of the stocks that RBC has highlighted in the past as having virtually no exposure to China, and it is a very attractive and somewhat defensive small/midcap play for investors. They also think that the company has benefited from the integration of UK IT services and solutions provider Kelway, although CDW has implied numbers for the quarter from Kelway will be down.

The analysts have cited in the past the unique culture and the compensation structure, and the Dell Partnership as among the top reasons to own the stock. They also see Trump’s plan for reduced corporate taxes and an infrastructure spending stimulus both helping.

CDW investors a paid a 1.26% dividend. The $55 RBC target price compares with the consensus target posted at $48.38. Shares closed yesterday at $50.65.

Texas Instruments

This old-school chip tech company was out of favor but has come back solid. Texas Instruments Inc. (NASDAQ: TXN) is a global semiconductor design and manufacturing company that develops analog integrated circuits and embedded processors.

The company generates 80% to 90% of its revenues from its analog and embedded processing businesses, which have well-diversified end-markets (autos, industrial, personal/consumer electronics), long product life cycles and limited capital intensity. The company has 6% market share of the auto chip market.

Numerous Wall Street pros see the stock as core large cap holding, and they cite a solid high-single-digit and very diverse revenue flow, solid capital allocation to lever the balance sheet if needed, and substantial room for margin expansion as the ramp up new facilities. The company boasts sustained impressive cash flow over the past several years and has impressively returned 100% plus of that back to shareholders via stock buybacks and dividends.

Texas Instruments posted strong third-quarter numbers and also increased its quarterly dividend by 32% to $0.50 per share, or $2.00 annualized. The increase reflects the company’s continued strength in free cash flow generation and its commitment to return excess cash to shareholders.

RBC again cites the potential for reduced corporate taxes, the infrastructure spending and also increased defense spending all as positive for the chip giant.

Investors are paid a solid 2.82% dividend with the new increase. The RBC price target for the stock is set at $85. The consensus price objective is lower at $74.34, and shares closed Wednesday just below that at $71.20.

Needless to say, all the final details of what the president will do after he is inaugurated in January are yet to be spelled out. But with both houses of Congress solidly in Republican control, most of what Trump has stated as his goals should come to pass in one form or another.