The Mitt Romney Factor In 2 Specific Sectors

by: Paulo Santos

Come November 6, there are many sectors which can win or lose depending on which Presidential candidate takes the election. But there are two deeply oversold sectors which might be even more affected than normal.

These are coal and for-profit education. Both these sectors' troubles are well known. The first has contended both with the shale boom and resulting low natural gas prices, as well as with an aggressive stance by EPA regarding emissions. The second has seen report after report bedeviling the debt, the defaults, the low graduation rates and low employability. Were Mitt Romney to carry the election, both sectors might well see large rallies on just the prospect of breathing easier for a while.


Coal's political problem comes from EPA tightening regulations for new coal power plants. However, when it comes to greenhouse (CO2) emissions, Romney has already stated on which side he falls. And that's coal's side.

CO2 emission regulations as proposed by EPA, although they apply to new power plants only, effectively lead to no new coal power plants. This kind of regulation, if scrapped by a Mitt Romney administration, could lead to new coal power plants in the future. Such a development would thus increase coal's prospects for U.S. producers such as Arch Coal (ACI) or Alpha Natural Resources (ANR).

For-profit education

Perhaps even more strongly, for-profit education is under attack by the administrative branch. It begins with the fact that for-profit education does not marry well with Obama's Democratic Party ideology. Additionally, for-profit education shoots itself in the feet constantly through sets of bad data regarding debt, defaults and low graduation. Part of this comes from the fact that it serves a population that's more prone to default and not graduate to begin with. Another factor is that for-profit education, by not receiving direct State aid, is also quite a bit more expensive for the students.

The administrative rule-making pressure has led to horrific plunges in the sector, with Bridgepoint Education (NYSE:BPI) being cut in half in a single week just on accreditation worries. Elsewhere, being forced to adopt tighter standards led to fewer enrollments, dropping revenues and imploding earnings at such places as Career Education (NASDAQ:CECO), Corinthian Colleges (NASDAQ:COCO) or Strayer Education (NASDAQ:STRA).

But here, too, Mitt Romney could make things different. "Mitt Romney's Plan for Restoring the Promise of American Education" states rather clearly that it wants to roll back the measures taken by Obama's administration. It also provides for greater participation by the private sector, both in providing the education itself and in financing it. It is, ideologically, much more favorable for for-profit education.

Given that the sector has been so punished, any change in administrative posture towards it could produce very large movements in the short term. One just needs to remember stocks like CECO, which trades well below the cash it holds. Or BPI - which carries tremendous fundamentals in spite of the fears - and trades with an EV/EBITDA below 1. These are stocks that can go up 50-100% on just a small piece of favorable news. News Romney could provide, by winning the election.


Even before November 6, it is likely that these sectors will at some point begin trading depending on how polls go. If things start leaning Romney's way, we would likely see a significant rally. This is especially true on for-profit education, where stocks have been punished more extensively and whose fate is more directly tied to administrative decisions.

Finally, at this point the race seems incredibly tight, with Gallup putting Obama with 46% voting intentions versus Romney's 45%. The Huffington Post also has a useful web page concentrating several different polls.

Disclosure: I am long ACI, ANR, CECO, BPI.

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