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Mitt Romney's win in Iowa (by an impossibly close margin) has cemented his status as the front runner for the Republican nomination. Whether or not he wins 2012 is another matter entirely of course, but it is still useful to consider the effects his policies could have if implemented. To be clear, this article is not a statement on whether or not the policies are good or bad, politically or otherwise. Rather, it is simply a face-value look at what his policies might mean for stocks, assuming Romney is able to implement them. Here are two trades that could do very well under a Romney presidency:

Defense

One of the most salient parts of Romney's foreign policy stance is his call for an increase in defense spending, particularly his plan to increase naval production from nine ships per year to 15. The beneficiaries of these policies are no surprise. One important one would be Northrup Grumman (NOC) which is a major defense contractor and the owner of the naval shipbuilding facility at Newport News. Another would likely be General Dynamics (GD) which owns Bath Iron Works, another major military shipbuilding facility. An increase in shipbuilding, as Mr. Romney desires (and the American public would likely support given China's aggressive stances in the Pacific recently), would help both sites. Mr. Romney's desire for a larger build-up of the ground and air forces would help those same companies as well.

Another area of defense that stands to gain if Mitt Romney gets his way is the aerospace sector. The troubled F-35 program is on the line for major cuts, which Defense secretary Leon Panetta has said could result in a major reduction in the U.S. military's capacity for warfare overseas. Though he faces significant spending problems, Mitt Romney is inclined to maintain that program, a major positive benefit for Lockheed Martin (LMT) which manufactures the jets and would play a major role in servicing the new fleet. If you are looking for safety rather than a riskier individual company, an ETF like ITA (iShares Dow Jones U.S. Aerospace and Defense) is an excellent place to start.

On the other hand, if you prefer to have the opportunity to earn large returns and don't mind a little risk, I recommend taking a look at Sparton Corp. (SPA), which manufactures, among other things, sonobuoys used to track submarines. If Romney starts a naval arms race, the company could be poised for massive growth, especially as the Chinese Navy's submarines increase in complexity and stealth. With Iran also pushing its domestic submarine fleet to further activity, the potential exists for a submarine arms race that could benefit Sparton handsomely.

Energy

Another crucial difference between the current policies and what Mitt Romney would seek to implement is the attitude towards domestic energy. It is unfair to paint Barack Obama as against domestic energy, but it is not unfair to say that Mitt will encourage it in a way the current president has declined to do. By repealing regulations, supporting offshore drilling and approving the Keystone XL pipeline, Romney has the potential to make America's energy future look very different. One of my favorite stocks to benefit from this eventuality is Arch Coal (ACI). Arch is a major domestic producer of coal for electricity production, and the stock is cheap, trading at 6 times forward earnings with a dividend of 3.00%. Repeal of orders waiving recent regulations of coal fired power plants will improve the domestic market for coal, giving Arch and its competitors a boost. And Mitt is unlikely to favor cap & trade or a carbon tax, eliminating a threat hanging over the industry so long as environmentally conscious politicians are in power.

Another play in the energy sector that could do well under Mitt is Dawson Geophysical Company (DWSN). This small seismic scanning operation feeds off of exploration for oil and natural gas on land in the United States, scanning the depths of the earth using sound waves to search for likely oil and gas deposits. Romney (or really any Republican, for that matter) would take steps to encourage this sort of drilling, as he places less emphasis on environmental matters when making decisions. More drilling would be a boon for Dawson, and with little debt and attractive forward valuations, those who believe that Romney will be elected would do well to take a look at these prices.

A further potential boon for Dawson Geophysical, as well as other domestic oil and gas producers, comes from Romney's aggressive stance toward Iran (the other Republican candidates, with the exception of Ron Paul, also support this view). Iran already has a tremendous incentive to threaten to close the Strait of Hormuz (which would cause a huge spike in global oil prices), as merely the threat increases the value of their massive reserves. A harsher stance on Iran will at the very least raise the odds of such an attempt, which despite the strength of the U.S. Navy in the region has the potential to cause major disruptions.

Simply put, a Romney presidency raises the odds of an oil supply crisis, making oil producers and other domestic energy concerns more attractive. In this event virtually all of the super-majors stand to profit, including Exxon-Mobil (XOM), British Petroleum (BP), Chevron (CVX) and many others. They tend to have excess capacity that can easily be brought online and the resources to rapidly do so, as opposed to independents who while still standing to profit from a rise in prices already produce as much as possible and have relatively less resources for rapid expansion. Again, this is a broad-based trade, with deep-ocean drillers like Ocean Rig (ORIG) and SeaDrill (SDRL) also benefitting in the case of a prolonged disruption.

Overall, Romney's comparatively aggressive foreign policy and domestic energy stances will make domestic energy and defense stocks, especially those mentioned here, more attractive.

The odds of his nomination and election increase. As the election draws closer, I will continue to look for ways to play all of the eventualities, and welcome comments that have either constructive criticism or suggestions for other possible plays on the 2012 election results, one way or the other.

Source: 2 Sectors To Consider If Romney Wins