A Trump trade, an obvious buy and a riskier stock idea

There’s a solid prospect that’s worth buying following the US presidential election, according to analyst Rodney Hobson. He also picks out a green stock to own and another big hitter that’s cheap again.

20th November 2024 07:52

Rodney Hobson from interactive investor

American energy stocks stand to gain if President-elect Donald Trump goes ahead with his oil sector vow to “drill, baby, drill”. Plentiful supplies of oil and gas should reduce costs for power supply companies as extra oil and gas production in the United States helps to offset production cuts by Opec nations. This could be a good time to consider buying Duke Energy Corp (NYSE:DUK) after a recent share price fall.

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Once again, as in 2016, Trump will inherit an economy in pretty good shape, with demand for energy at work and home increasing rather than tailing off. The only worry is that he will spark trade wars that damage the US economy, but his bark is likely to be worse than his bite.

Duke shares have slipped back from a peak at $120 in October to around $113 now, where the price/earnings (PE) ratio is only a little on the high side at 20, while the dividend is pretty good for the New York Stock Exchange at 3.65%.

In addition, those seeking to take a contrarian view or looking for promising smaller companies that normally fall off the radar, may like to consider companies whose shares reacted badly to Trump’s election.

Fears that green energy will be cast aside by the new Trump administration took solar storage firm Sunnova Energy International Inc (NYSE:NOVA) down from $7.06 immediately before the poll to $3.65 and solar panel manufacturer First Solar Inc (NASDAQ:FSLR) from $215 to $195.

Sunnova has been on a steady decline since topping $50 in 2021 and First Solar has been slipping back after peaking near $280 in May, so the fall is not all Trump-related by any means. First Solar’s PE ratio is now a comfortable 16.4 but it does not pay a dividend.

Yet green energy surely still has a place in America’s plans even if it does not get the priority it had under Joe Biden.

Hobson’s choice: I have long regarded Duke Energy as a solid prospect to hold in any long-term portfolio and that view does not change. After the recent slippage from a new peak, the shares have become a buy again. If, instead, you fancy a risky punt, I think the prospects at First Solar are far better than at Sunnova.

Source: interactive investor. Past performance is not a guide to future performance.

Update: When one company reports lower than expected sales of a particular product, it could be that demand is less than everyone assumed, or it could be that someone else is snatching market share. So when Eli Lilly and Co (NYSE:LLY) produced disappointing sales figures for its weight-loss drug, attention turned to rival Novo Nordisk AS ADR (NYSE:NVO).

The Danish drugs company reported that sales of weight-loss jab Wegovy in the third quarter were a full 80% higher than they had been a year earlier. Revenue from the diabetes drug Ozempic, also used to reduce weight, increased 26%.

Demand for Wegovy has outstripped supply since it was launched three years ago even though production has been tripled. There is surely enough demand for both companies to boost sales.

Novo Nordisk shares topped $140 in June but have fallen back heavily to around $101. They look an obvious buy below $100, where they should find support. Two weeks ago, I recommended selling Lilly at $806 and they are now down to a more realistic $717. This is a hard company to call, as I have discovered several times over the past few years, but the next support level could be as low as $600. If you have stayed in during the fall, I would be inclined to hold and hope for the best but it is far too soon to buy in for recovery.

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.

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