Before You Buy a “Trump Stock,” Ask These 3 Questions…

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Editor’s Note: When Washington backs a company, investors pay attention. But how much of that support is already reflected in the share price?

It’s an important question as we approach the November 3 midterm elections and a potential “changing of the guard” in Congress. And my friend and colleague Jonathan Rose has a useful way to address it.

Jonathan’s approach to the markets is fascinating, as he watches unusual trading activity for clues about where the big money is moving. Then he weighs the opportunity against the price and risk. I’ve said it before, Jonathan has “the greatest edge over the markets I’ve ever seen.”

Below, Jonathan shares two stocks he’s bullish on, two he’s leaving alone, and three questions he asks before getting into a government-backed trade.

His analysis explains why even a promising business helped by Washington may require patience.

And watch your inbox for a note about his upcoming $10K to $100K Challenge. We’ll be sharing more info on that with you soon.

Take it away, Jonathan…

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Hey, guys.

In September 2008, Washington stepped in to rescue Fannie Mae and Freddie Mac.

These were enormous companies with an enormous job. Millions of American mortgages ran through the system they helped finance. The government couldn’t let that collapse.

But here’s the distinction that mattered — a lot — to anyone who owned their shares.

Washington was protecting the mortgage market. It was protecting holders of the companies’ debt. Existing shareholders? They bore losses. Common shareholders were further back in line to recover their money.

Washington was protecting a vital economic function. That didn’t mean it was protecting the price you paid for the stock.

Investors today call this kind of support a “government put” — the idea that the White House’s backing puts a floor under certain stocks. It’s a useful concept. But like all useful concepts, it can be taken too far.

Keep that in mind as you look at today’s Washington-backed opportunities. Domestic chipmaking, rare-earth production, artificial intelligence — all the industries the administration has decided are essential to America’s future.

These companies are in a completely different situation from Fannie and Freddie. But the same question applies: What, exactly, is the government protecting — and how much are you paying for it?

Answer those two things honestly, and you’ll make better trades.

Louis has been explaining why government policy can support certain businesses. I want to take that one step further and show you how I actually look at their stocks. Because a company can have a powerful tailwind and still be a bad trade at the wrong price.

And a stock that looks expensive today can become a really good opportunity after it pulls back.

In this piece, I’m going to show you how I think about that, including two names I’m bullish on right now, two I’m leaving alone, and the three questions I ask before I put any government-backed trade on.

What Washington’s Support Is Actually Worth

Think about buying a house.

You find a property you like. A major employer is moving nearby, and the town is fixing the roads. So you think demand could rise.

Those are all good reasons to take a closer look.

But you still check what similar properties have actually sold for nearby. You still inspect the property. And you still ask whether the seller has already priced in every improvement you’re excited about.

Same thing here.

A federal investment, a contract, a favorable policy — any of those can genuinely improve a company’s prospects. Once that news is public, though, investors pile in fast. The shares jump. And a lot of the good news is already in the price.

I call that the Washington premium.

It’s not a precise number. It’s just a way of thinking about how much of a stock’s appeal depends on what investors are expecting from the White House — not from the business itself.

And the support comes in different forms. It matters which kind you’re looking at.

Sometimes Washington is an investor. Intel Corp. (INTC) reached an agreement with the Trump administration for an $8.9 billion investment — a 9.9% passive stake, no board representation. That’s a serious commitment to domestic semiconductor manufacturing. It also leaves every normal business question on the table. Can Intel execute? How competitive are their products? What do their earnings look like? What price actually makes sense for the shares?

Sometimes Washington supports a company’s production economics. MP Materials Corp.’s (MP) agreement with the Pentagon included a 10-year price floor on its neodymium-praseodymium products, plus financing and purchase commitments tied to expanding domestic magnet production. That makes the business more dependable. But a floor under the price of a product is not the same thing as a floor under the price of the stock. If investors overpay, the stock can still go down.

And sometimes Washington controls who a company can sell to. That’s the export policy question for Nvidia Corp. (NVDA) and Advanced Micro Devices Inc. (AMD). You can be completely bullish on long-term demand for computing power and still recognize that a single federal policy headline can swing these stocks in the short term.

That’s why I don’t throw all these names into one basket labeled “Trump stocks.” Their businesses are different and their government relationships are different, so they deserve to be looked at separately.

So, here’s where I land: bullish on Microsoft Corp. (MSFT) and Nvidia and bearish on Intel and Oracle Corp. (ORCL). Those are separate judgments about separate opportunities, not one big trade on Washington.

Three Questions I Ask Before Getting Involved

First: What does the government commitment actually cover?

A signed purchase agreement is very different from a politician making encouraging comments. An actual investment is different from a potential investment. And even a big commitment may only support one slice of a company’s overall business. I want to know what’s real before I start deciding what it’s worth.

Second: How much good news is already in the stock?

If a company gets meaningful support and the shares immediately surge 40%, buying afterward means paying the new price. You don’t get the earlier entry just because you correctly understood the news first. This is where patience matters. I’d rather put a name on my watchlist and wait for a setup I like than chase it because everyone’s suddenly talking about it.

Third: What’s my plan if expectations change?

With the November 3 midterm elections approaching, investors are going to start thinking about how a different political balance might affect Washington’s priorities. That doesn’t mean existing agreements disappear. But a stock can absolutely move because investors become less confident about future support — about additional contracts, about the pace of a project. The underlying business stays intact while the premium investors are willing to pay just leaks out. Before I enter a trade, I decide how much I’m willing to risk and what would make me reconsider. Then I go look at the trading itself for confirmation.

My approach centers on unusual trading activity — big, concentrated trades that tell me whether serious money is building a position. That activity gives me something to dig into alongside the news, the company, and the price.

It doesn’t make every trade a winner, but it definitely helps me focus my attention on the right places.

One MP Materials options trade on our record offered a potential gain of 534% in three days. That’s an options result — not a 534% move in MP’s shares — and an individual trader’s outcome depended on their entry and exit. But it shows why I spend so much time thinking about how to structure a trade and when to make it, not just whether the company is good.

You could identify an attractive company and buy the stock. You could find an options opportunity with a smaller initial outlay. Or you could decide the opportunity is already too expensive and wait. The decision depends on the price, the timing, and the risk you’re willing to take.

That’s the work. And it’s what I want to help you understand.

You can see how I approach it every day by joining me at Masters in Trading LIVE — free on YouTube at 11 a.m. Eastern every day the market is open. I walk through what I’m watching, explain the activity that’s caught my attention, and tell you why something interests me — or why I’m leaving it alone.

Sign up here, and we’ll email you the link each market day, along with additional columns and research from me.

Washington’s involvement can absolutely create valuable opportunities. Understanding the “government put” is part of understanding these businesses. But then comes the next decision: what to pay, how to participate, how much to risk.

Remember 2008 and what happened to Fannie and Freddie. Government support has a specific purpose. Find out what that purpose is and figure out what it means for the business. And then make sure the trade makes sense at the price in front of you, not the price it was before everyone else figured it out.

Remember, the creative trader wins.

Jonathan Rose

Founder, Masters in Trading

P.S. Jonathan brings a valuable trading perspective to the opportunities I’ve been discussing with you. I encourage you to sign up for his free Masters in Trading LIVE emails and hear how he evaluates the market each day. You’ll get a link to his 11 a.m. Eastern broadcast, plus additional research. And keep an eye on your inbox: We’ll have more to share soon about his upcoming $10K to $100K Challenge and what he’ll be teaching.

Sincerely,

Louis Navellier

Editor, Market 360