As the U.S. prepares for the upcoming presidential election in November, KeyBanc Capital Markets has highlighted sectors that might offer stability amidst potential market fluctuations. Defense, telecom, water, environment, and construction stocks are seen as potential safe havens during this period.
KeyBanc Capital Markets analyst Sangita Jain emphasized the defensive qualities of certain stocks in a note released Tuesday. “We believe that defense-focused names offer some insulation against election-related volatility,” Jain stated. Within this context, KeyBanc Capital Markets has reiterated its overweight rating for government contractor KBR Inc. (KBR) and defense, intelligence, and infrastructure firm Parsons Corp. (PSN). Jain pointed out, “KBR trades at a meaningful discount to its SOTP (sum-of-the parts) valuation, and [Parsons] offers exposure to [the Defense Department’s] cybersecurity/intelligence programs.”
Additionally, filings with the Securities and Exchange Commission reveal that Leon Cooperman’s hedge fund acquired a stake in KBR during the first quarter of 2024. Among 12 analysts surveyed by FactSet, 11 have an overweight or buy rating for KBR, while one has a hold rating. Similarly, nine out of 10 analysts covering Parsons have an overweight or buy rating, with one analyst holding a hold rating.
KeyBanc Capital Markets also highlighted the stability of the telecom sector, describing it as “an election-agnostic theme with very strong business fundamentals to boot.” The firm reiterated its overweight ratings for MasTec Inc. (MTZ) and Dycom Industries Inc. (DY). Jain noted, “[MasTec] is exposed to a strengthening wireless telecom theme and wireline exposure to funding that is insulated from policy changes post-elections.” Dycom, described as “a pure play telecom operator,” is seen as well-positioned to benefit from the Broadband Equity Access and Deployment (BEAD) program, which provides $42.45 billion to expand high-speed internet access.
FactSet surveys show strong analyst support for these telecom stocks, with 10 out of 14 analysts giving MasTec an overweight or buy rating and four a hold rating. All nine analysts surveyed rate Dycom as a buy.
Water and environmental stocks also drew attention from KeyBanc Capital Markets, particularly after the Supreme Court’s recent ruling overturning the Chevron decision. “With increasing likelihood of a Trump term and the SCOTUS ruling on Chevron, investors are questioning the resilience of the water/environmental theme,” Jain wrote. Nonetheless, KeyBanc maintains a positive outlook, citing the increasing frequency of climate disasters and awareness around PFAS contamination.
The firm maintained its overweight rating for consulting and engineering services company Tetra Tech (TTEK) and infrastructure consulting firm Aecom (ACM). Jain mentioned, “We believe that the theme will remain a strong one to invest in (look back at Trump’s first term when [Tetra Tech Inc.’s] federal business grew 8% on an NSR basis).” Of the seven analysts surveyed by FactSet, five rated Tetra Tech as a buy and two as a hold. For Aecom, 11 out of 13 analysts gave an overweight or buy rating, with two holding a hold rating.
Lastly, KeyBanc Capital Markets upgraded engineering and construction company Fluor Corp. (FLR) to overweight. Jain highlighted Fluor’s discounted valuation and substantial reimbursable backlog, stating, “[Fluor] offers a unique way to participate in the re-industrialization themes prevalent in the U.S. and Europe that are likely to prevail regardless of the outcome of the 2024 elections.” Of the 10 analysts surveyed by FactSet, six have an overweight or buy rating for Fluor, while four have a hold rating.
Key Takeaways
- Defense Stocks: KBR Inc. (KBR) and Parsons Corp. (PSN) are seen as stable investments due to their defense-related operations.
- Telecom Sector: MasTec Inc. (MTZ) and Dycom Industries Inc. (DY) offer strong fundamentals and are considered insulated from election-related volatility.
- Water and Environmental Stocks: Tetra Tech (TTEK) and Aecom (ACM) remain strong investment themes despite regulatory uncertainties.
- Construction Stocks: Fluor Corp. (FLR) provides exposure to re-industrialization themes with a favorable valuation.
Conclusion
As the U.S. presidential election approaches, KeyBanc Capital Markets identifies sectors and stocks that could provide stability amidst market volatility. Defense and telecom stocks, in particular, are highlighted for their strong fundamentals and insulation from election-related risks. Investors may find refuge in these areas, bolstered by favorable analyst ratings and strategic investments from prominent hedge funds.
