However, investors need not avoid stocks altogether. Whatever the election result may be, there will be winners and losers. Some industries may even do well under both election scenarios and investors need to bear in mind that no two stocks are the same.

Strong support for defence

The defence industry is one such industry that should continue to thrive no matter who takes the White House next week. With global conflicts on the up and rising geopolitical tensions, both candidates have signalled strong support for more defence spending.

This means BAE Systems (LSE: BA) stands to benefit from the likely post-election increase in the defence budget. The British defence company is the eighth largest supplier to the US Department of Defence and derives 36% of its revenues from the US. It’s also particularly well placed to benefit from further spending trends because it has been expanding into new areas, not just in electronic warfare, but also surveillance and cyber security.

However, investors ought to keep a close eye on potential developments in the Middle East. The supply of military hardware to Saudi Arabia has come under renewed scrutiny following the kingdom’s recent attacks on Yemen. And as Saudi Arabia is BAE’s third largest customer, accounting for 21% of group revenues, any potential ban on sales could have serious repercussions on BAE’s profitability.

BAE currently expects to deliver a 5%-10% rise in underlying earnings per share this year, and shares currently trade at 13.7 times its expected earnings this year.

Better off with Trump?

Meanwhile, G4S (LSE: GFS) could stand to become a major beneficiary from Trump’s proposed immigration policy shift. His strong rhetoric on immigration and his pledge to deport an estimated 11m undocumented immigrants in the US may be a boon for G4S’s security and prison services.

The security company is doing well as things stand. Yesterday, it said it had won new contracts with annual revenues of £1bn and total contract values of £2bn since the start of the year. Also, revenues from continuing operations in the first nine months of 2016 grew by 5.7% year-on-year, to £4.82bn.

These latest figures show the company’s focus on organic growth and cutting costs is beginning to work and G4S is clearly putting past controversies behind it and moving on. Shares in the company currently trade at 14.5 times its expected earnings this year, based on analysts expectations of a 4% rise in underlying EPS in 2016. G4S is also attractive from an income standpoint, with shares trading at a prospective yield of 4.3% this year, with forecasts of dividend growth of 3%.

The post 2 stocks I’d buy before the US election appeared first on The Twelfth Magpie.

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Jack Tang has a position in BAE Systems. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Instead, investors should consider buying low volatility, defensive dividend-paying shares. A well-diversified portfolio of such shares should provide investors with steady income no matter what the referendum result may be. So, for those that need to put some money to work, the following four stocks might be worth a closer look.

Most defensive

National Grid (LSE: NG) is probably the most defensive stock in the FTSE 100 index. With a beta of just 0.32, a 1% drop in the stock market index historically only leads to an average decline in the value of National Grid’s shares of just 0.32%.

Unlike most other energy utility companies, National Grid is largely immune to volatility in energy usage and commodity prices, making the firm incredibly non-cyclical. The gas and electricity transmission company is a natural monopoly, meaning it has virtually no competitors, and earns “rent-like” returns year after year.

The stock isn’t cheap though, with shares trading at 15.4 times forward earnings. However, the stock has an attractive dividend, and management has pledged to raise the dividend by at least RPI inflation each year “for the foreseeable future“.

National Grid currently yields 4.5%, and city analysts expect its prospective dividend yield will rise to 4.6% this year, and 4.7% in 2017.

Steady returns

Staying with the utilities sector, Severn Trent (LSE: SVT) is another safe pick. Like National Grid, Severn Trent is a natural monopoly too. This means it has great cash flow visibility and low earnings volatility. Utility stocks are not known for producing massive gains, but if what you’re after is steady returns, then they should not disappoint.

Given Severn Trent’s recent strong earnings trend, I expect its shares to continue to outperform in the short term. Ofwat’s new 5-year regulatory regime does not seem to hurt profits as much as expected. In fact, Severn Trent’s full-year pre-tax profits actually rose 4.4% to £313.6m, as it benefited particularly well from new incentives to reduce leakages and improve customer service, which earned it a net real reward of £23.2m.

Severn Trent pays an annual dividend of 80.7p per share and yields 3.7% today. Of course, the payout isn’t risk free – the dividend has just been cut by 5%. But historic cuts have always tended to be modest, and the stock is certainly on the conservative end of the spectrum.

Growing dividends

3i Infrastructure‘s (LSE: 3IN) global diversification helps to insulate it from downturns in any single market. The infrastructure investment company invests in a diversified portfolio of infrastructure companies and seeks to provide shareholders with a total return of 8-10% per annum.

Historically, 3i Infrastructure has a strong track record, with an average total return of 11.7% over the past 5 years. The infrastructure company currently yields 4.2% from its dividend of 7.25p per share. And 3i has pledged to pay 7.55p per share for the coming year, giving it a prospective yield of 4.4%.

Hedge against inflation

GCP Infrastructure Investments (LSE: GCP) invests primarily in UK infrastructure debt, which is secured against long-dated public sector-backed cash flows. As a buyer of debt, as opposed to equity, GCP is like a less risky version of 3i Infrastructure. And since a significant proportion of assets is inflation-linked, the fund is a good hedge against inflation too.

At a share price of 119p, the shares currently yield 6.4%. 

The post Buy National Grid plc, Severn Trent plc, 3i Infrastructure plc & GCP Infrastructure Investments Limited to protect against volatility? appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

It’s only natural if it does, and it’s the kind of thing that keeps many people away from investing in shares altogether,  instead sticking to “safer” cash savings accounts that earn a measly 1% or 2% per year. And it’s understandable that you might feel more confident with a smooth stock market chart, edging gradually up every year, and with no sharp dips for your cash to fall into.

But if you’re looking for a home for long-term savings — money that you won’t want to touch for a couple of decades or so — then you could be making a very big mistake. That’s because over the long term, the ups and downs of the market actually help to boost your profits.

Regular investments

Let’s suppose you have £100 a month to save and you think about putting it into a FTSE 100 tracker — that’s a low-cost fund that closely replicates the performance of the index. And let’s imagine a year in which the FTSE ends the year at exactly the same level as it started. Which would make you feel better — a smooth ride at the same level all year with no ups and downs, or violent 20% swings either way month by month?

Well, the smooth ride would leave you with exactly the same at the end of the year as you had invested (minus charges, which can be as low as 0.25% per year for a tracker fund).

But if you get hit with the extreme roller-coaster ride, on a month when the FTSE 100 is 20% up you’ll buy fewer shares with your £100, and on months when it’s down you’ll be able to buy more. Now, you might think I’m going to tell you the two will even out and you’ll be no worse off, but it’s actually better than that.

An extra boost

Thanks to a thing called pound cost averaging, the extra shares you can buy on cheaper months actually slightly outweigh the shortfall on more expensive months, and by the end of the year you will have invested £1,200… but it will be worth £1,250! That might not sound much, but it’s an extra 4.2%, which alone is way better than you’ll get from cash savings.

Of course, the FTSE won’t gyrate as wildly as that, but I chose such big swings to emphasize that you really should not be afraid of short term spikes and dips in the market. Over the long term they tend to even out anyway and investing in shares has soundly beaten cash savings for a century and more. But on top of that, my extreme example shows that short-term volatility actually adds a little boost to the profits made by regular investors.

Take the profits

So next time you hear someone sucking their teeth and shaking their head over a “FTSE collapse” headline, you shouldn’t feel down in the dumps. No, if you’re in it for the long term, you should be smiling and thinking to yourself “Now I can buy shares in great companies even cheaper“.

The post Here’s Why Volatility Is Your Friend appeared first on The Twelfth Magpie.

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