There is little doubt that it pays for a corporation and its stakeholders to contribute to the campaigns of politicians whose platforms help them become more profitable. For example, a candidate who is pro-military could definitely help the bottom line of an arms manufacturer should he or she be elected, while a candidate who supports alternative energy could provide a boost to solar manufacturers and other green energy producers.
In a study by Michael Cooper, associate professor of finance at the University of Utah, along with assistant professors Huseyin Gulen of Purdue and Alexei Ovtchinnikov of Vanderbilt University, it was found that the stocks of companies that contributed to congressional candidates had better share price returns than those that didn't. The difference was significant, with an average premium in returns of 6% per year.
Based on the theory that a company (or its stakeholders) will contribute to the campaign of the candidate whose platform will help its business, it makes sense to invest in the companies that have, either directly or indirectly, made contributions to the candidate that you believe will win. If Senator Barack Obama becomes president, the companies that back him will, theoretically, do better than the companies that made contributions to Republican nominee John McCain. For Obama-backers, we have created the "Barack Obama Stock Index", which is made up of five companies whose major stakeholders have made contributions to Obama's campaign. We have used contributors from the 2007 Forbes 400 list to ensure that we are using contributors with influence. (To see how the other half lives and invests, read Five Stocks If McCain's Your Man.)
The Obama Stock Index
|Contributor|| Forbes 400
|Position at Company|
|Lester Crown||68||Co-Founder of General Dynamics (NYSE:GD)|
|Wilma Tisch||161||Widow of Loews Corporation (NYSE:LTR) Founder|
|John Morgridge||220||Former CEO of Cisco Systems (Nasdaq:CSCO)|
|Pat Stryker||271||Granddaughter of Stryker Corporation (NYSE:SYK) Founder|
|Vinod Khosla||317||Co-Founder of Sun Microsystems (Nasdaq:JAVA)|
| * As of the 2007 Forbes 400
Italics signify ranking is a tie
To be able to choose which presidential candidate you think will win, you must first understand their platforms. Here is a quick overview of Obama's presidential platform as provided by Forbes.com. This will help you to decide whether to invest in the companies listed in the index above.
If elected as president, Obama proposes an immediate phased withdrawal of troops from Iraq, with the goal of being fully removed by the end of this year. He is also focused on revamping energy policies to look for increased efficiencies and alternative energy technologies. (For more on investing in alternative energy, check out Five Companies Leading The Green Charge.)
He would also like to see expanded healthcare coverage. By expanding the earned income tax credit and increasing the minimum wage, Obama also hopes to help the nation's poor.
Stryker has fallen 16% this year from $73.60 on the first day of trading in 2008, to close on June 24 at $62.06. These losses come as a little bit of a surprise, as the sector (as measured by the DJ U.S. Medical Supplies Index) has only dropped about 4% in the same time period. Despite this, the company is in good financial shape, as noted by Stock Picking Community member bankinbenjees in a recent stock pick:
|"great company, no debt. excellent management. industry leader in R & D. holds rights to many surgical and healthcare related devices and tools. company is also in great location near several excellent engineering schools from which to pull employees. great future and wonderful pick for any long-term portfolio."|
I have to agree with bankinbenjees, especially when looking at the company's situation compared to its competitors. With revenues 114% above the industry average and operating margins of 22% (compared to the industry average of -8%), Stryker seems to have been beaten down this year a bit more than it deserves. As long as it continues to grow its quarterly revenue at about 15% (year-over-year) as it has been doing, and it continues to keep its tight margins, the future looks good for this diamond in the rough.
Add Your Two Cents
Who do you think will win the presidential race? Will campaign contributions pay off with higher share prices for Stryker and the other companies in our Barack Obama Stock Index if Barack Obama gets the vote? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.