Let's for a moment travel to one likely version of the near future. The date is November 4, the time around 11pm, and just moments ago all major news networks confirmed that Barack Obama will be the next president of the United States. Index futures plummet on fears that Obama's policies will hurt big business and increase taxes on the very wealthy.
But this is no time to panic. With any change comes opportunity. And with big change, the opportunities can be even more rewarding.
The first opportunity is clearly an investment in clean energy stocks. Obama talks a great deal about the need for clean energy and he has made it clear that the government should encourage the development of alternative energy fuels. When George W. Bush first mentioned alternative energy in his State of the Union address, those stocks skyrocketed the following day. If Obama is serious about developing new sources of energy, this might propel clean energy stocks on a new rally, despite falling price of oil.
A good hedge for this strategy might be to short the nuclear energy sector. Although Obama has hypothetically supported the increase in nuclear power, he will likely forgo this option for less politically explosive energy sources. Here is one way to set this strategy up: buy the PowerShares WilderHill Clean Energy ETF (PBW) while at the same shorting the Market Vectors Nuclear Energy ETF (NLR).
Another one of Obama's goals is to increase the minimum wage to $9.50. If this idea gains traction it could indicate a decrease in profits for America's fast food restaurants that rely heavily on their minimum wage workforce. On the other hand, family style franchise chains that already pay a higher salary and provide benefits will be less affected. The strategy here would be to short McDonald's Corp (MCD) and Burger King Holdings (BKC) while buying Darden Restaurants Inc. (DRI) which owns the Red Lobster and Olive Garden restaurants.
Finally we get to Obama's proposed changes to defense spending. Counter to popular belief, Obama does not plan to drastically change defense spending. In fact, he has proposed to increase the size of the military by almost 100,000. Also, his desire to modernize America's armed forces could be good news for companies such as iRobot Corp (IRBT) that supply robots to the U.S military.
Disclosure: No position in stocks mentioned.
