Has Trump's victory created an investment opportunity?
It's certainly been an interesting 24 hours across global stock markets since Donald Trump became US President-elect yesterday.
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Asian markets fell heavily as Trump edged closer to victory on Wednesday morning, and at one stage FTSE 100 futures were pointing to similar falls for the UK's key index. However, as UK investors took time to digest the election result, panic dissipated and remarkably, the FTSE 100 ended up 1% for the day.
Beneficiaries of the Trump victory included infrastructure related stocks such as Ashtead Group (+11.5%), defence stocks such as BAE Systems (+6.8%), and healthcare stocks such as Hikma Pharmaceuticals (+6.1%). Yet although the FTSE 100 closed higher, the rise wasn't universal with over 40% of the stocks in the index falling on the back of the Trump result, some quite heavily.
With many high quality 'defensive' companies such as Diageo (LSE: DGE) and Unilever (LSE: ULVR) starting to show a little bit of share price weakness recently, let's look at whether the Trump-related volatility has opened the door to some bargains.
Volatility creates opportunities
While declining share prices scare a lot of investors, if like me you're investing for the long term, then volatility can be seen as an opportunity to buy into high quality businesses at lower prices just as other investors panic and rush for the exits.
With the FTSE 100 having surged higher since Brexit and many 'core holding' stocks having traded at high multiples over the last few months, I was hoping the Trump victory might be the catalyst for a share price correction.
Core holdings
Both Diageo and Unilever have been on my watchlist for some time now. With strong track records of generating shareholder value, in my opinion these two companies are ideal for buy-and-hold investors. Both have seen their share prices dip recently and both fell on the back of the Trump victory yesterday. Is it time to pull the trigger?
Diageo has fallen approximately 10% since its October high and now trades at around the 2,070p level. With the company generating adjusted earnings per share and dividends per share of 89.4p and 59.2p respectively for FY2016, the drinks giant is trading on a P/E ratio of 23.2 with a dividend yield of 2.9%. While Diageo often trades at a premium to the rest of the market, the stock still looks a tad pricey to me, given that the company's 10-year average P/E and dividend yield figures are 18.8 and 3.1%.
It's a similar story at Unilever with the consumer goods champion falling around 13% from a high of 3,808p in October to 3,312p today. Normally, such a fall would pique my interest, however Unilever still trades on a P/E ratio of 21.7 times earnings, which is significantly above its 10-year average P/E of 15.1. While the company's dividend yield of 3.3% is very close to it's 10-year average yield of 3.4%, I'm hesitant to buy the stock at such a high price multiple.
While both stocks appear to offer better value than they did a month ago, I'm going to hold off on adding these high quality names to my portfolio for now in the hope that I can purchase them at a more attractive valuation. With Trump at the helm, I'm sure there will be more opportunity-creating market volatility in the near future.
Keep an eye on these five 'core holdings'
Buying high quality companies for the long term when others investors are panicking is one investing strategy that has stood the test of time.
With that in mind, I recommend keeping an eye on the five stocks listed in this exclusive report from The Motley Fool: Five stocks to retire on.
Despite 2016 being a highly volatile year, all five of the stocks listed in the report have risen this year, however if share market volatility persists, there may be opportunities to pick up these high quality businesses at attractive prices.
If you're looking for core portfolio holdings to buy and keep, this report could be an excellent place to start.
To find out which stocks The Motley Fool favours as long-term winners, for FREE, click here.
Edward Sheldon owns shares in BAE Systems. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo and Hikma Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
