No matter what an investor's personal leanings and preferences are, it's always helpful to evaluate each side of a binary outcome, and the upcoming Presidential election is very definitely a binary outcome - either a republican or democrat will win. With that in mind, it is useful to consider which industries/sectors may do well under four years of a republican administration. Although data suggests that the stock market does better during democratic administrations, there are, nevertheless, sectors that seem likely to do well (or better) under a Romney administration.
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Probably the most obvious sector that could benefit from a change in the White House is the healthcare sector, particularly health insurance and device companies. Medical device companies such as Medtronic (NYSE:MDT), Johnson & Johnson (NYSE:JNJ) and Covidien (NYSE:COV), to say nothing of numerous smaller companies, would love to see the sales-based excise tax (part of how the Affordable Care Act will be funded) go away.
For insurance companies such as UnitedHealth Group (NYSE:UNH) and WellPoint (NYSE:WLP), the situation is a little more nuanced. While the requirement that almost all Americans get health insurance would be good for the membership rolls, the mandated minimum medical loss ratios and public exchanges would be hard on margins. Last but not least, I think there could be an underappreciated potential benefit for drug and device companies. Romney has promoted himself as more pro-business and anti-regulation; that could suggest a more compliant and industry-friendly FDA, fewer limits on off-label marketing and some protection from large class-action suits.
Banks and insurance companies could also do better with a republican administration. Large banks have seen once-lucrative profit centers like deposit/account fees shrink considerably, and companies like U.S. Bancorp (NYSE:USB) and Wells Fargo (NYSE:WFC) could benefit from lower regulations. For both banks and insurance companies, a Romney administration could also be good for spreads - Romney has criticized the low interest rate policy of the Fed, and higher rates would be good for banks and insurance companies like Metlife (NYSE:MET) that benefit from a steeper yield curve.
SEE: Government Regulations: Do They Help Businesses?
Coal stocks have been soundly thumped over the last 18 months, as costs tied to environmental and worker safety regulations have made gas-fired electricity generation considerably more cost-effective for utilities. If these regulations were repealed or eased, the breakeven point between coal and gas could become more favorable towards coal, and companies such as Peabody (NYSE:BTU) and Arch Coal (NYSE:ACI) would benefit.
I say "could" because I think that the natural gas industry could also benefit significantly under a new regime, and those benefits could maintain a breakeven price that favors natural gas. Under a Romney administration, I would expect less regulatory overburden with respect to hydraulic fracturing, pipeline construction, and offshore permitting - all of of which could further increase gas supplies. If a Romney administration also eases rules on energy infrastructure spending, companies like Chart Industries (Nasdaq:GTLS) could see even more LNG terminal construction (which would support higher natural gas prices and higher coal demand).
A host of tech companies could also stand to gain from a Romney administration. Many republicans would like to see R&D tax credits made permanent, and many would likewise like to see reforms to how cash repatriations are taxed. Companies like Apple (Nasdaq:AAPL) have enormous overseas cash balances and could conceivably launch larger buybacks/special dividends with a repatriation tax holiday. Companies such as Apple, Google (Nasdaq:GOOG) and Intel (Nasdaq:INTC) could also potentially look forward to more industry-friendly rules on intellectual property and patent protection, allowing them to reap higher margins for longer.
The Bottom Line
Investors should always remember that there are no simple answers when it comes to which stocks will benefit from a particular political outcome. Not only do politicians often promise one bill of goods and deliver another, but the realities of the interactions between the House, Senate and White House often mean compromises and trade-offs that blunt the real-world impact of campaign promises. Nevertheless, if Romney succeeds in his quest to the White House and is able to push through more pro-business/anti-regulation policies, a large number of regulated industries could see their stocks appreciate in November and December of this year.
At the time of writing, Stephen D. Simpson did not own any shares in any company mentioned in this article.
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