10 Winning Stock Themes in an Obama Administration

I thought it would be interesting and fun to start a series of discussions of what some general positive and negative themes could potentially be under either a Obama or McCain administration. I'll begin with an analysis of what some potential winning themes could be under an Obama administration. I will follow this up over the next couple of weeks with an analysis of potential winning themes under McCain followed by negative themes of each candidate. Since it is very difficult to predict the exact composition of Congress in the future and where each candidate will spend his most time and energy in office these are all simply educated guesses at this time.

10 Potentially Winning Stock Themes of an Obama presidency:

1) Environmental companies. Clearly, there is a strong belief from Obama in alternative energy and in the development and use of more environmentally friendly products, which could be a huge potential growth engine for these types of companies, especially if subsidies are given by the Government. Areas that are less discussed that would likely benefit could include companies that work as contractors with alternative energy companies or which are involved in environmental cleanup or consulting work.

2) Low-end retailers. The most likely scenario is that we will have a Democratic president and Democratic congress. Traditionally, this has resulted in at least somewhat of a movement of wealth from the upper class to the lower class. It is likely that the U.S. Government would increase government programs for the poor and potentially the even lower middle class, which would in turn increase the disposable income of these same groups of people. Under this scenario, lower- end retailers could do very well while high-end retailers may need to redesign themselves to a larger audience.

3) Educational companies. Historically, during periods of higher taxes or during more difficult economic periods, stocks focused on education have performed very well relative to other industries. It is also possible that education incentives would be increased by the Government thus allowing for more people to have the opportunity to get a higher education.

4) Infrastructure companies. In the last several years, we have seen significant infrastructure issues with the nation's roads and bridges as our highway system has become somewhat aged. Democratic administrations have traditionally been supportive of increases in infrastructure spending, which is even more likely if we continue to have economic malaise.

5) Biotechnology. The Government under an Obama administration is likely to increase overall support of biotechnology programs while at the same time other areas of health care such as pharma could be hurt as more price controls may be enacted.

6) Municipal bonds. Muni bonds should benefit from increases in both capital gains and income tax rates. Muni bonds tend to be held by the wealthiest individuals who would have the largest increases in tax rates under proposed Obama tax changes.

7) REITs. REITs are not currently covered by the 15% capital gains/dividend tax rate and therefore could actually benefit from a "leveling of the playing field" in terms of taxation.

8) Shift From globalization to protectionism. This is one of the more dangerous areas of potential policy in my opinion. If it were to occur it could reverse the globalization play that many have found quite profitable over the past several years while benefitting some domestic sectors which may be in decline competitively but which could be protected with increased government protectionism.

9) Tax preparation companies. As overall income tax and other tax rates increase, individuals may find increased benefit from professional tax preparation.

10) Asset management firms focused predominantly on retirement assets. It is possible that individuals will decide to save more into their retirement plans as tax rates increase as expectations of current vs. future tax rates evolve.

Comments

[User 224899]

The really BIG money in an Obama presidency will be made by trial attorneys. No big surprise in this, considering where his campaign money comes from.

No, Dorothea. We’re not in Kansas, and Obama’s millions don’t come from the penny jars of average black folk.

Consider his take on equal employment for women: Obama says he’ll make it easier to sue for workplace gender discrimination. That just means there will be more opportunities for lawyers to get fees – as though our country needs another “opportunity” like that !

[au trader]

The "negative themes" for obama will need to be a 10 part series, not just a single article.

[tuj]

Yeah? Maybe check out some data. angrybear.blogspot.com...

[jcrash]

Anything is better than further disgracing the US image by attempting to continue to think we can influence world politics positively with our military.

Violence begets violence and destabilizes in a feedback loop.

I'll take higher taxes, more corporate oversight any day if it means that we aren't the international laughstock we are today.

[Tom B]

"5) Biotechnology. The Government under an Obama administration is likely to increase overall support of biotechnology programs"

It would be great in the FDA could be "fixed". The crony-ridden agency has been painfully slow with new drug approvals and very quick to condemn safe, marketed products. How meaningful is it if an antidepressent raises apparent suicide rates? These drugs go to a very at-risk population to begin with, so interpretation of the statistics is likely to be fraught with peril.

"8) Shift From globalization to protectionism"

Globalization is a shell-game, a scam. What good is it if I pay 10 cents less for a pair of socks from China if the dude across town goes on unemployment because his domestic sock factory closes? All globalization does is shifts costs from business to goverment, and this ends up causing taxes to rise. Foreign goods should be subject to sensible tariffs to offset lack of minimum wage laws / environmental protections in the exporting countries. Level the playing field. You do that in sports-- why not in trade?

[Brian27]

1) Bigger government subsidies would help alternative energy stocks.

2) The discount retailers will definitely benefit from falling after tax incomes and the higher end retailers and teen retailers will be hurt.

3) Increased educational subsidies to educational companies will obviously improve returns.

4) Increased government spending on roads and bridges will clearly help construction companies.

5) The democrats in congress want to control spending on drugs by reducing reimbursements. That is a negative for all drug making companies. More importantly for biotechs the democrats want to make it easier for generics to copy their drugs. One of the great features of biotechs is their difficulty to replicate and the costs of testing before introduction. The democrats want to make it easier, quicker and cheaper to bring generics to market. How the democrats are positive for biotechs is difficult to imagine.

6) Higher tax rates on capital and income will reduce the savings of the wealthy and cause a decline in demand for muni bonds. This will have a negative effect on the muni bond market.

7) Not clear how higher taxes on REITS will help them.

8) The sectors in decline from foreign competition will not obviously benefit from protectionist policies. Switching GM production to the US from Canada or Mexico is not necessarily going to make GM more profitable.

9) With lower after tax incomes individuals will prefer to save money by completing their own tax forms.

10) Higher tax rates on capital gains and income will reduce after tax incomes and hence reduce savings for retirement. This is a negative for asset management firms. Higher capital gains taxes means that asset accumulation will be lower. As individuals will have to cash out to pay higher taxes.

[razoroccam]

I don't agree with the biotechnology theme. BHO will try to legislate the market price of drugs, thereby decreasing the attractiveness of biotech companies.

[JET1C]

Gypsies, Tramps, Thieves and Politicians. Doctors, Lawyers and Used Car Salesmen. All in the same bag. Not to be trusted. No Damn Good.

Regards the White House, What is the international symbol for “No Morons”?

I say we add a box to the ballot, "None of the Above". It would cost the country billions to hold another (several?) election, but what has the last eight years cost?? Trillions!!, over 4100 of our finest young men and women and lifelong suffering for 30,000 more.

Congrats "W".

[thku4grace]

"Globalization is a shell-game, a scam. What good is it if I pay 10 cents less for a pair of socks from China if the dude across town goes on unemployment because his domestic sock factory closes? All globalization does is shifts costs from business to goverment, and this ends up causing taxes to rise. Foreign goods should be subject to sensible tariffs to offset lack of minimum wage laws / environmental protections in the exporting countries. Level the playing field. You do that in sports-- why not in trade?"

Oh my, how incredibly uninformed can one be?
First of all I think the price difference for a pair of socks is more than 10 cents. The theory behind globalization is that different countries have different strengths. Using China for comparative purposes--we have a country with a huge population and an inexpensive labor force. Some may see it as slave labor wages but the fact of the matter is a little money goes a long way in China. One can still buy a cup of noodles on a street corner in Beijing for 7 cents. Clearly, we can't compete in easy to enter low-tech manufacturing. Applying tariffs to offset the price discrepancy was part of the prescription for the 1930's depression. I can't blame politicians of that day for their missteps as they didn't fully understand the ramifications of their protectionist policies. To spin this drivel now is incredibly ignorant. The question for Americans that have worked in low-tech industries is, so what can we do? My answer is get an education in this education-friendly nation. Take advantage of the opportunities that abound in this nation. There is a belief held by many in this nation that China is a highly educated nation, but that's largely untrue. In fact, while a good education is looked upon highly in Chinese society, and they push their children hard, only 3% of the population get a university education. Interesting coming from a country that prides itself on socialism. What a failure.
Lastly, the shift of costs from business to government---there is truth to this statement. All nations have provided support for various industries that export products overseas. China, Japan, Australia, Germany, France, Canada, U.S.....the list goes on and on. It is actually addressable through international trade laws. The problem is the length of time from infraction to remedy. There also is a problem of transparency. The U.S. is seemingly more transparent than most all other nations. Even European nations have been more capable in covering up their subsidization machine. So far, the only remedy is the expense incurred on the taxpayers. Countries can't indefinitely subsidize industry. With a globalized world, there will always be a new country with a lower standard of living that would be willing to host an foreign company seeking cheap labor.

[User 225042]

Protectionist policies wont be good for the stock market, but who cares about the multinationals, its this harnessing of the multinationals which has hurt the us consumer and us worker. If you had a clue about what is going on this country you would know this. Top 5% is putting their money overseas, Trickledown economics dosent work anymore. wake up.

[nova]

This is an election year. Politicians of both parties are looking to reelection.

Consequently, the administration, the Congress, and Fed will do everything [legal and illegal, honest and dishonest] possible to support US economy and market until the election.

Following the election, an inevitable will happen:
- US$ must be protected
- Interest Rates will shoot up a lot
- US economy and financial market will collapse

So, is the a good investments for President Obama?
- Short everything
- Buy Gold
- Do not count of government agencies since they need too much help for themselves

[AmesTiedeman]

Why get long these or anything? The markets are clearly in deep, deep trouble.

[RightinSanFrancisco]

There would be a lag time, and one must distinguish the ecomomy from the market, but the long term implications of an anti-globalization administration would be a disaster.

[diogenes]

jcrash wrote:Anything is better than further disgracing the US image by attempting to continue to think we can influence world politics positively with our military.

Violence begets violence and destabilizes in a feedback loop.

I'll take higher taxes, more corporate oversight any day if it means that we aren't the international laughstock we are today.

This kind of naivete will get us into a nuclear war. Your previous "messiah" FDR even regonized it when he said...you can't turn a tiger into a cat by petting it"! Big wars are started by VI Lenin's "useful idiots" as he put it. Winston Churchill said it best...Bigs wars are fought because the small ones weren't. Even better, another demoKrat, except an older one, said: Thomas Jefferson
"Those who hammer their guns into plows
Will plow for those who do not."  - Thomas Jefferson

[bearfund]

The winning themes for an Obama presidency are the same as for a McCain presidency: short Treasuries, long gold. The reasons are slightly different but the outcome is the same. The problem is the imbalance between government spending (enormous and growing) and GDP (stagnant in official terms, shrinking rapidly if true prices are factored in). If taxes are raised enough to balance the budget and stop the bleeding from the Treasury, or if they're raised only on the "rich" (by which I mean the people we used to call middle-class, when we had a middle class), wholesale capital flight will result and _nobody_ will want to hold dollars at all out of fear. Why would I want to hold an American cement company's shares that will earn 20% more thanks to government spending if 60% of those nominal earnings will go to taxes and the dollar is losing 25% of its purchasing power every year? But if taxes aren't raised, or raised by only a small amount, the supply of debt will balloon even further as the government makes a desperate effort to subsidise and prop up anything and everything. Fannie and Freddie are huge but nothing like the whole story; as much as $8b of the FDIC's $53b just vapourised with IndyMac and there are hundreds of bank failures yet to come. The bleeding hearts will pump ever more borrowed money into housing, fuel, you name it, pushing prices ever higher and devaluing the dollar in a vicious circle. Obama's likely socialist medicine programme will boost spending even further, as would McCain's warmongering, and as a bonus war is good for gold. There's no winning either way with dollar-denominated assets. Unless you want to gamble, be sure any equities you hold are as far from US influence as possible. But if you're smart, you'll just stick with the winning macro theme we've had for a while now and keep shorting Treasuries on irrational countertrends like we had early last week and buying more gold on all dips and corrections.

I laugh every time I read "flight to quality" in association with Treasuries; take a step back and look objectively at what kind of quality they actually offer. Holders have no recourse in event of default; it is more or less impossible to force a sovereign to pay. They are unsecured; in the event of default, you will not obtain any asset or an equity stake in anything. They are denominated in a currency controlled by the issuer; if the issuer does not want to default but is unwilling or unable to pay, it can simply devalue the currency to whatever extent it wishes and then make the agreed-upon payments in worthless currency. Supply is unconstrained and the ratings agencies don't seem to care how overburdened or undercapitalised the US Treasury becomes. Any other government or corporation in a similar position would be looking at a speculative-grade rating but the ratings agencies don't have the balls to rate this stuff like the junk that it is. About the best that can be said for Treasuries is that the market in them is deep, global, and liquid. But the same could have been said for MBSs 2 years ago before everyone suddenly realised they were toxic. The real challenge isn't finding winning themes for the next presidential administration; it's finding a worse investment than a 30-year junk bond yielding less than the rate of inflation. Tulips, maybe?

[diogenes]

User 225042 wrote: Top 5% is putting their money overseas, Trickledown economics dosent work anymore. wake up.

Gee, User225042, I've never gotten a job from a poor person. Anyway, the positive results will be to the countries that do not enslave their citizens by confiscatory taxation. Think, Chile, Brazil, China, Russia, etc. We will end up moribund just as France, Italy, Greece, etc. the socialist paradises that the far left loves. I grew up on a small farm raising pigs, chopping cotton and such in eastern NC and after a lifetime of saving and investing, and delaying gratification, I am savvy enough to not let the "messiah's" useful idiots take it away. I have been 100% cash for 2 years now and that is now overseas. Just got my fingerprints done as required for a Chilean immigrant card. Hope you folks enjoy your socialist paradise.

[Jake2]

Diogenes: Pretty clear you didn't find what you were looking for in the mirror, did you?

[Jake2]

User 224899: "No, Dorothea. We’re not in Kansas, and Obama’s millions don’t come from the penny jars of average black folk."

What's an "average black folk?" Is an average black folk different from an "average brown or white folk?"
Did you make this statement in "white" face?

[Realsit]

IS Oboma-nation a synonym for abomination?

[captbob]

Short and sweet: You'd be better off going back to Alchemy than trying to profit investing under Obama.

Listen closely between the lines; This guy is very articulate but Socialist to the core.

Last time I looked they weren't selling shares, but the fastest growing business under Socialism, is Soup Kitchens & Shelters. And I'm not talking bomb shelters; But after his "talks" with those nice folks in Iran we'll need those too.

[chagrinned1]

Talk about a waste of time. We already have both Houses of Congress in Dimocrat's hands based on the promises they made in the prior election. Hmmm, has anybody noticed any improvement in our lives? Has it been a kinder/gentler Congress as promised by Ms Pelosi/Mr Reid? I warn you now--You will not like the results if we have all of Congress and Presidency controlled by one party. The offices of Pres and Congress NEED contention(checks and balances). We may see that not happen in 2009. We may end up with one party rule= DISASTER!! (irregardless of which party).

[this Bud'sfor you]

Risk takers will quit taking risk if it is not rewarded. Social Democrats, Socialists, and Communists simply don't get it. Redistribution of income is a sorry economic growth plan. If you want to, set the income tax rate at 100% for "the wealthy" next year - and you can bet your bba you won't collect it two years in a row.

Neither candidate is worth a schit. God help us!

[Realsit]

"Currently, the average combined federal and state corporate tax rate in the U.S. is 39.3 percent, second among OECD countries to Japan's combined rate of 39.5 percent. Lowering the federal rate to 30.5 percent would only lower the U.S.'s ranking to fifth highest among industrialized countries."

More recently, other members of Congress—including Sen. John McCain and Congressman Eric Cantor—have released proposals to cut the corporate rate even deeper to 25 percent. While this lower rate would improve the U.S.'s international ranking and competitiveness, that improvement would be mitigated by the high corporate tax rates imposed by many states.

Many states impose state corporate income taxes at rates above the national average of 6.6 percent. Iowa, for example, imposes the highest corporate tax rate of 12 percent, followed by Pennsylvania's 9.99 percent rate and Minnesota's 9.8 percent rate. When added to the federal rate, these states tax their businesses at rates far in excess of all other OECD countries.

When compared to other OECD countries:

- 24 U.S. states have a combined corporate tax rate higher than top-ranked Japan.
- 32 states have a combined corporate tax rate higher than third-ranked Germany.
- 46 states have a combined corporate tax rate higher than fourth-ranked Canada.
- All 50 states have a combined corporate tax rate higher than fifth-ranked France.

Thus, if lawmakers are serious about making the U.S. corporate tax system more competitive internationally, corporate tax rates will have to be reduced both in Washington and in state capitals.

An Obama presidency will be the proverbial nail in the coffin for the U.S. economy.

[tuckfinitee]

bearfund and Realsit the truth is out there. Why is no one listening? Spend and print(initiated in 63) has hit the wall. The enormous energy deficit the US is running isn't going to be solved by the alternative energy claims the toe dancers have been making since the 70s. If we don't produce more energy(there is no scientific reason for the US not to be self sufficient) and reduce spending and stabilise money supply the massive wealth revaluation will continue. I wonder if fiat currencies and indeed the wrestern socialist hegemony will be able sustain itself near term. Oh what am I thinking the political thugs will make out fine. They will simply blame businessmen if there's a meltdown. I've already seen the "failure of capitalism" stories. The grunt and gesture public doen't even know what socialism or capitalism is. They have have no concept how government creates the economic landscape. Cause and effect? Forgetaboutit, too complicated.

[nom deplume]

Here is a direct pocket money commodity play -- ammunition. Not buying companies, but actually holding it. The price is increasing due to shortages, and the democrats have promised to impose restrictions that would make "pre-ban" ammunition considerably more valuable. I don't consider myself a survivalist type, but I intend to stockpile the calibers I use in sufficient amounts to make "private sales" later when the price is five to ten times as high.

And if it doesn't go up (or the country doesn't collapse), I can actually go out and have fun with it. Unlike gold.