Growth stocks can take our portfolios to the next level, just like Donald Trump wants to send the US economy into overdrive. But which companies might benefit from the returning President? Well, proposed tax cuts should benefit most US enterprises in some ways, while tariffs will help some firms up to a point. However, here are two companies with very specific reasons to benefit.
SpaceX’s competition
SpaceX may have made a lot of headline in recent months given Elon Musk’s alliance with Trump, with the company likely to gain from the new US government’s space ambitions. However, Rocket Lab (NASDAQ:RKLB) is a listed and much cheaper alternative to SpaceX and should also benefit from increased activity in the space realm.
Rocket Lab might not be Mars-ready, but it has some distinct advantages over SpaceX. This includes cost-effectiveness for dedicated launches in payload class up to 13 tons with its upcoming Neutron ‘launch vehicle’. Its dedicated launch capabilities and reputation for precise orbital insertions also suggest it doesn’t deserve the massive discount to SpaceX (that unlisted company recently bought shares back from employees suggesting a value of $350bn compared to Rocket Lab’s $13.7bn).
As trading opened on Tuesday (21 January), Rocket Lab stock surged 30%. This followed Trump’s most recent remarks about prioritising space exploration at his inauguration. This is actually rather gutting for me as I touted the stock on Friday, noting its $1.8trn addressable market by 2035, but wasn’t able to purchase the stock before the market opened on Tuesday.
Are there any risks? Well, some are related to SpaceX. While there’s probably room for multiple players in this sector, there’s the risk that SpaceX, given its likely strong balance sheet, fast-paced innovation, and links to Trump, could hoover up a large proportion of government contracts. I’m not convinced by this argument, but time will tell.
Obviously, I wish I’d bought this stock last week. But I could also say that for other companies in my watchlist, including Opfi and Innovative Solutions and Support. At this higher price, I’ll have to re-evaluate my interest in Rocket Lab.
AI offers efficiencies
I’m not particularly bullish on Palantir Technologies (NASDAQ:PLTR) but I know a lot of people think this software company will go far. That’s because this firm, which embeds AI into its platforms to assist with data integration, decision-making, and operations at scale, was founded by Peter Thiel — a Trump backer and co-founder of PayPal (with which Elon Musk was also involved).
However, it would be wrong of me to suggest Thiel’s closeness to Trump is the only reason this business could succeed. The company has a long track record of working with US defence and intelligence agencies and its Starlab consortium for a commercial space station aligns with Trump’s ambition in space. Moreover, its platforms also deliver the all-important efficiency that could help reduce government bloat.
The risks of investing in Palantir lie in the valuation. It’s extraordinarily expensive At 173 times forward earnings — very similar to Musk’s Tesla valuation. While the expected growth rate is very strong, the price-to-earnings-to-growth (PEG) ratio stands around seven times. As such, I don’t expect to add this stock to my portfolio.
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James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
