There is a change in the way the federal government operates that investors need to incorporate into their thinking. If they do it right, they can get some gains by holding stocks that President Donald Trump might covet.
The White House often points out that Trump is a businessman and his second administration has demonstrated a willingness to do business directly with American companies. The federal government, in some capacity, now owns pieces of Intel, rare earth miner MP Materials, and lithium miner Lithium Americas.
The government also holds a golden share in the recently acquired U.S. Steel. It is sharing excess profits from Analog Devices and Coherent after supplying capital. And on Monday, it announced plans to take a stake in early-stage mining company USA Rare Earth.
It is more than a pattern. It is the new economic reality.
Kim Wallace, senior managing director at 22V Research and head of the Washington policy risk team, identified several other companies that might catch the government’s interest.
His list of publicly traded companies includes defense AI player Palantir Technologies, quantum computing firms IonQ and Rigetti Computing, natural gas producer Expand Energy, rare earth miner Aclara Resources, and even Apple.
These names are in areas the federal government views strategically, including AI and critical minerals. They also have only upside and essentially no downside from a government investment, wrote Wallace, adding that bumps from government investment tend to stay in the stocks, versus fade over time.
It’s an eclectic list. PE ratios range from 13 times to 30 times to 170 times for Expand, Apple, and Palantir, respectively. The other three aren’t expected to produce full-year profits yet, according to FactSet. Market capitalizations range from below $1 billion for Aclara to more than $3.5 trillion for Apple.
As for Wall Street, analysts prefer Expand, IonQ, and Rigetti. The Buy-rating ratios for those three are 88%, 77%, and 91%, respectively. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. Apple’s Buy-rating ratio is 58%. Palantir’s is 28%. Only two analysts cover Aclara. One rates shares Buy.
To be sure, a government stake can’t be the only reason to hold a stock. Doing that makes a stock a poorly planned binary bet. But when an investor’s thesis overlaps with the potential for government interest, it can be like a free option.
Call options give the holder the right to buy a stock for a fixed price in the future. A stock moving up beyond the strike price can lead to big gains. Investors use options do more than bet on individual stocks. They can be used to bet on stock volatility and binary events like a contract win.
In this instance, the idea is for stock upside driven by an unexpected event resulting from the federal government’s new ways of doing business.
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