America voted on Tuesday, and as the dust settles the results are coming clear. First, there was no ‘Blue Wave’ of Democrats sweeping the Trump Republicans out of office. Yes, the Dems made gains, but those gains were small by historical standards. We saw a closer split among the State governorships and a 10 to 15 seat House majority, while the Republicans expanded their Senate majority, perhaps as high as 55 to 45. The main result appears to be increased partisan polarization.

As for expectations, it looks like Congress will be gridlocked for a while. The new House majority will likely try to reverse the tax cuts or impede President Trump’s trade policy . However it is unlikely this will be able to push the government into a new course. The Senate is highly unlikely to pass any of the new House majority’s bills. But as one wag once pointed out, when the House and Senate are too gridlocked to help you, they can’t hurt you either.

Industry Flexes its Muscle

Honeywell International

President Trump took office promising to bring manufacturing jobs back to the US, and his policies – in trade, taxes, and government regulation – favor business and manufacturers. Honeywell International (HON – Research Report), with its hands in a wide variety of posts from aerospace to home building to industrial safety to materials technologies, is well positioned to take advantage of an improving industrial climate.

It shows in the company’s stock performance. HON started moving up in January 2017, and continued to appreciate for that whole year. The stock leveled off and started showing more volatility this year, but still hit its peak value – $163 – this past September. After losing ground in October, a strong quarterly earnings report has helped the stock rebound.

Five-star analyst Peter Arment (Track Record & Ratings), writing from Baird, agrees that Honeywell is on track for growth. He describes “significant long-term upside in Honeywell shares as organic growth improves coupled with the strategic actions of its spinoffs,” adding that “healthy organic growth, automation investments, and an active M&A pipeline, should allow the company to replenish the lost earnings at a higher margin profile.” He gives HON a ‘Buy’ rating, with a price target of $187. Honeywell’s average upside forecast is $170, 13% higher than the current $150 share price.

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United Technologies Corporation

United Tech (UTX – Research Report) is another major manufacturer which has benefited from Trump’s shift toward pro-business policies. Like Honeywell, UTX manufactures a wide variety of products– everything from aircraft engines to HVAC systems to elevators and escalators. United also holds large defense contracts, with about 10% of company revenue coming from the US government.

A solid third quarter has helped UTX in the stock markets, giving it a 7% boost from its recent trough. Shares now stand at $130 and are trending upwards. Among the good news in the earnings call: EPS beat the consensus forecast by eleven cents and overall revenues beat consensus by 2%. The company raised its 2018 EPS guidance to $7.20 to $7.30, and bumped up the estimate for yearly sales to $64 to $64.5 billion. UTX shares closed at $130 yesterday, up 2%.

The consensus on UTX is a Strong Buy. Baird’s Peter Arment (Track Record & Ratings), quoted above, has also reviewed UTX, and set an aggressive $167 price target – a 28% upside from today’s share price. More recently, RBC Capital’s Deane Dray (Track Record & Ratings) gave UTX a $148 price target, a 14% upside, noting that 2019 tariffs “appear manageable.” The analyst consensus here is a another ‘Strong Buy,’ with a 17% upside giving an average price target of $153.

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Getting from Here to There

So much of the modern urban world simply slips beneath our radar, and by design as logistic systems are intended to be seamless. Shipping and transportation companies, however, are poised to gain along with manufacturers. Simply put, someone has to carry all the stuff that that factories build. The transport industry is making gains across the board as American industry increases its output. Railway companies report an increase in shipment volume, ports are busy, and land and air freight traffic is up as well.

FedEx Corporation

Let FedEx (FDX – Research Report) stand as a proxy for the freight industry. The iconic company is built on a reputation for getting packages anywhere in the world on time, as summed up in an early ad slogan: “When it absolutely, positively, has to be there overnight.”

FedEx’s recent fiscal Q1 report was mixed, but that may have been an artifact of excessive expectations. The company reported a 40% increase in net profit, up to $835 million, citing increased traffic volume as a major factor, but the earnings per share were 35 cents below estimates. Stock prices slipped in response, and that in turn has led market analysts to see an opportunity.

Cowen’s Helane Becker (Track Record & Ratings) noted the weakness in the share price, but also noted a chance to “use the weakness as a buying opportunity as management raised the full-year earnings range due to a strong economy and continued traction with revenue and cost initiatives.” She gave FedEx a $280 price target.

At the same time, Scott Schneeburger (Track Record & Ratings) from Oppenheimer gave FDX a $288 price target. Schneeburger noted the complaints on the quarterly report, and suggests that investors use the lower price to pick up a bargain. He noted that the holiday shopping season is a peak time for shipping and package delivery, and said, “Despite the softer start, FedEx maintained its FY19 revenue growth guidance and increased its adjusted EPS range.”

FedEx holds a ‘Strong Buy’ analyst consensus, and the average price target of $286 represents a 23% upside forecast.

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