Investing In The President-Elect

In advance of the U.S. presidential election, we published two articles in June 2008 - Five Stocks for Obama Backers and Five Stock Picks for Obama Backers - about stocks investors should consider in the event of an Obama presidency. Now that Barack Obama has been elected, it's time to revisit these picks.

When Politics Pays
Corporations and stakeholders in corporations often benefit by contributing to the campaigns of politicians whose platforms could help them become more profitable. For example, the election of a pro-military candidate could boost the bottom line of arms manufacturers, while the election of a pro-alternative energy candidate could support the growth and profits of companies that manufacture solar panels and other green products.

A study by Michael Cooper, associate professor of finance at the University of Utah, and assistant professors Huseyin Gulen of Purdue and Alexei Ovtchinnikov of Vanderbilt, showed 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.

Now that President-Elect Barack Obama has won, companies that backed him would, in theory, perform better than those that made contributions to John McCain's campaign. To investigate this theory further, we consolidated the two "Senator Barack Obama Stock Indexes". Each index was made up of five companies whose major stakeholders made contributions to Senator Obama's campaign. To ensure examination of contributors with influence, we chose donors who made the Forbes 400 list in 2007. Thus, the "President-Elect Barack Obama Stock Index", which is comprised of 10 companies, follows.

The Obama Stock Index

Contributor	Forbes 400 Ranking*	Position at Company
Warren Buffett	2	CEO at Berkshire Hathaway (NYSE:BRK.A)
George Kaiser	26	Chairman at BOK Financial Corporation (Nasdaq:BOKF)
Lester Crown	68	Co-Founder of General Dynamics (NYSE:GD)
Matthew Bucksbaum	105	Shareholder at General Growth (NYSE:GGP)
Steven Spielberg	117	Dreamworks Principle at Viacom (NYSE:VIA)
Wilma Tisch	161	Widow of Loews Corporation (NYSE:L) Founder
John Morgridge	220	Former CEO of Cisco Systems (Nasdaq:CSCO)
Pat Stryker	271	Granddaughter of Stryker Corporation (NYSE:SYK) Founder
Irwin Jacobs	297	Founder at Qualcomm(Nasdaq:QCOM)
Vinod Khosla	317	Co-Founder of Sun Microsystems (Nasdaq:JAVA)
* As of the 2007 Forbes 400 Italics signify ranking is a tie

Platform Highlights
To decipher the reasons certain companies may prefer a specific candidate over another, you must understand the candidates' platforms. Here is a quick overview of Obama's presidential platform provided by Forbes.com:

During his campaign, Obama proposed an immediate, phased withdrawal of troops from Iraq that would result in complete removal by the end of the year. In addition, he proposed a revamping of energy policies that would result in increased fuel efficiency for vehicles and expansion of alternative energy technologies. (For more on investing in alternative energy, read the related article Five Companies Leading the Green Charge.)

Barack Obama also posited overhauling the U.S. healthcare system so that all citizens could receive health coverage. By expanding the earned income tax credit and increasing the minimum wage, President-Elect Obama hopes to lift the nation's poor out of poverty.

Add Your Two Cents
Now that Obama has been elected, will campaign contributions pay off with higher share prices for the companies in the Obama Stock Index? What companies do you think will perform best under the new administration? Join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.