Tesla and 2 More Stock Picks to Invest in the 'Red Wave' Election Results

While the final House votes are still being tallied, the latest projections indicate that Republicans are set to take control of the lower chamber of Congress alongside the Senate, clearing the path a full GOP sweep of the executive and legislative branches. Investors have been quick to cheer an expected pro-business agenda from President-elect Trump, which is broadly anticipated to feature investments in domestic manufacturing and infrastructure, widespread deregulation, and fresh tax incentives. Additionally, shifts in environmental policies could affect the renewable energy and waste management industries.

Against this backdrop, analysts at Oppenheimer have highlighted three stocks that could benefit from anticipated policy changes under the incoming “Red Wave” in Washington, D.C.: Caterpillar (CAT), a leader in heavy equipment manufacturing expected to benefit from infrastructure spending and reshoring trends; Tesla (TSLA), the domestic electric vehicle (EV) leader whose CEO Elon Musk is a close ally of Trump's; and Republic Services (RSG), a top player in waste management and recycling that could see a boost for its landfill biogas initiatives. Here's a closer look at all three.

#1. Tesla

Tesla (TSLA) has already experienced a meteoric rise following Donald Trump's election win. The stock has surged 32% in the past week, reaching a 52-week high above $358 in the process and reclaiming a $1 trillion market cap. TSLA is now up 33.8% on a YTD basis after spending most of 2024 in the red, although the shares remain down about 15% from their 2021 highs.

Musk, who was openly supportive of Trump during the campaign, could see Tesla benefit from the incoming administration’s policies. For instance, Trump’s potential tariffs on Chinese goods could make it harder for Chinese EVs to penetrate the U.S. market. This would be an advantage for Tesla, which manufactures EVs domestically. As a result, Tesla could also face fewer cost increases on parts than domestic competitors reliant on imports, giving it a stronger competitive edge in U.S. pricing.

In addition to these potential policy tailwinds, Tesla is showing solid growth in its core business, as highlighted in the third-quarter earnings report released on Oct. 23. The company posted a net profit of $2.17 billion, beating estimates of $2.01 billion, although revenue slightly missed expectations at $25.18 billion against a forecast of $25.47 billion. Nevertheless, margins beat estimates, which came as a major relief to investors amid the ongoing EV price war. According to Tesla, it is currently positioned between "two major growth waves." 

Earlier in the month, Tesla’s Q3 delivery report had showed that the company delivered 462,890 vehicles, topping consensus estimates and marking a 4% increase over the previous quarter, and 6% year-over-year. Looking forward, Musk projected a 20% to 30% increase in vehicle growth by 2025. 

Previously, Tesla’s robotaxi announcement on Oct. 10 had sent the stock reeling as investors reacted to a lack of details, but a recent patent win for the automaker could reveal more insights about the company's ultimate strategy on autonomous driving.

Tesla appears to be a compelling long-term investment, especially if it achieves its autonomous driving goals. However, the company's valuation remains a concern. Despite being a low-margin automaker, Tesla is valued similarly to a disruptive tech company, trading at a forward adjusted price-to-earnings (P/E) ratio of around 140x. This valuation reflects high market expectations for growth, which is worth considering for investors who may not have the patience or risk tolerance to ride out some of Tesla's notorious missed deadlines.

While Tesla bulls, including longtime enthusiast Dan Ives of Wedbush, have weighed in optimistically on the potential impact of a second Trump administration, the stock remains a “Hold” overall.

#2. Caterpillar

With a market cap of $191.5 billion, the construction and mining equipment giant Caterpillar (CAT) has reached all-time highs this year. The stock is up 32.9% year-to-date and 64% over the past 52 weeks, outpacing the broader S&P 500 Index($SPX). 

Known for its reliable dividend history, Caterpillar has increased its dividend at an average 7.5% growth rate over the past five years. Currently, it pays a quarterly dividend of $1.41 per share, yielding 1.42%. With over 30 years of consistent dividend growth, CAT is a Dividend Aristocrat, and remains a top choice for passive income investors.

On Oct. 30, Caterpillar reported its third-quarter earnings, which caused a 2% drop in the stock as the results missed expectations. Revenue was down 4%, totaling $16.11 billion, with the Construction Industries segment seeing a 9% decline on lower sales volumes and unfavorable pricing. However, the Energy & Transportation segment experienced 5% growth, driven by rising demand for power generation. Caterpillar attributed the sales volume drop of $759 million mainly to reduced end-user equipment sales and unfavorable dealer inventory adjustments. 

On an adjusted basis, Caterpillar reported adjusted EPS of $5.17, while EBITDA of $3.6 billion represented a 7% year-over-year decrease.

CAT maintains a strong balance sheet, and generated ME&T cash flow of $2.7 billion during Q3. The company also increased its forecast for full-year ME&T free cash flow, which is now anticipated to reach the upper end of its previously stated $5-10 billion range.

From a valuation perspective, Caterpillar’s forward adjusted price-to-earnings (P/E) ratio of 18.13 appears attractive, representing a modest discount to both the sector median of 21.1 and its own five-year average. This positions Caterpillar as a relatively affordable entry in the industrial sector. 

Wall Street analysts have a consensus “moderate buy” rating on Caterpillar, which has surpassed the mean price target of $379.39.

#3. Republic Services

With a market cap of $66.3 billion, Republic Services (RSG) stock has performed quite respectably against the broader market, gaining 34.4% over the past 52 weeks and hitting a new high of $214.96 to start this week. 

Additionally, Republic's continued commitment to shareholder value through dividends adds some appeal. The company offers a quarterly dividend of $0.58 per share, yielding 1.10%, that's backed by over two decades of consistent growth.

Along with its core, recession-proof operations in waste collection and recycling, Oppenheimer expects RSG to benefit from policy shifts that favor the company's operations in converting landfill gas to energy.

Republic Services, in collaboration with Archaea Energy, is currently developing a renewable natural gas (RNG) facility at the Middle Point Landfill in Tennessee. This project will convert landfill gas into a low-carbon fuel, supporting the company’s sustainability goals while reducing greenhouse gas emissions. The RNG facility is part of a broader initiative to build 39 new RNG projects at landfills across the country. Republic Services already operates 77 renewable energy projects, generating electricity and RNG from its landfills to fuel its fleet and help communities meet sustainability targets.

On Oct. 29, RSG reported an adjusted Q3 profit of $1.81 per share, which comfortably surpassed consensus estimates, while revenue rose 6.5% to $4.08 billion, but slightly missed Wall Street's forecast. The company's gross margins and operating margins improved slightly to 41% and 20.8%, respectively, in the quarter. 

Overall, analysts have given Republic Services a consensus rating of “moderate buy,” with a mean price target of $221.84.

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On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.