Its Election Day, and the market is gearing up for what's next for the market. Different industries and sectors will benefit more than others from each candidate's election. What we want to do today is uncover some of those industries and our favorites in those industries. If Obama wins, the four industries we like are firearms, green energy, hospitals, and residential construction. For Romney, we like defense, energy drillers, investment banks, and regional banks. Additionally, we believe that the two main industries that have the most to win/lose from the election are financials and energy, so we like two reverse iron condors in both of those.
Firearms - Smith Ruger :
Last election, firearms were very popular in sales after an Obama election, and there is not a lot to expect a big difference again here. There are several reasons why firearm sales will improve on Obama election. First, expectations of more aggressive firearm laws will cause potential buyers to push their purchases forward. Additionally, many conservatives pushed purchases forward as well out of some fear. Will a similar pattern of buyers coming forward after an Obama election occur? We believe so. After the last election, RGR increased 50% over the next six months especially at the turn of the year when sales from Q4 started to be unveiled. We believe that those increases will be pushed forward.
Green Energy - Tesla :
Green energy is one of the places of Obama's major investments. The results have not been great with the likes of Solyndra and others flailing. One company, however, that has benefited from Obama push for clean energy is Tesla. The company should see a nice push from an Obama election over Romney as the company would benefit from more government subsidies and help that brings attention and benefits to clean energy. TSLA had some very solid results recently as well that have helped push the stock back over $30, and an Obama election could help push TSLA even higher.
Hospitals - Housing Management :
Obamacare is a benefit to hospitals, and since Obama's election, HMA has increased over 175%. Hospitals benefit from Obamacare because it helps drive down costs and increase margins for hospitals. HMA's margins went from 8.9% to 9.6% in 2008 to 2012. The hospitals will continue to benefit as costs of doing business drop, Medicare would continue to be funded well and allow for more use of hospitals as well. HMA is one of our favorites because the stock is so cheap right now. HMA holds a 7 future PE, and we expect another 100-200% gains in four years if Obama is elected for HMA.
Residential Consturction - PulteGroup :
Obama's attention to middle class and belief that home ownership is one of the tenets of middle class success has caused the president to initiate a lot of short-term beneficial housing policies. We believe that type of policy will continue to occur with help to first-time home buyers. Romney has commented that his policies are more reminiscent of investment bankers. He would not like to put forth any legislation to help housing and allow the industry to have a natural bottom without government intervention. That type of approach would be less beneficial to new housing construction companies like PHM. We chose PHM as well due to their approach to attract first-time and second-time home buyers.
Defense - Raytheon :
Defense has been one of the main sectors to not enjoy a lot of the benefits of President Obama's tenure, and these stock would be ready to pop if Romney wins. Romney has already stated he wants to increase defense spending, building more planes, ships, and other military devices. What that means is more contracts for companies like RTN. Raytheon of the group is in the best technical shape right now as they are in a very strong upward channel. Further, RTN will benefit from the large amount of work they do with the US Navy and ships. Look for RTN to really prosper on a Romney election.
Energy - Transocean :
Energy, as a whole, will definitely benefit from Romney. The president hopeful has built his campaign on building at home energy. One of the main sources of that energy will be oil and offshore drilling. One of the best companies to benefit from that agenda is Transocean. The rig company has not gotten back on track since the BP incident, and Romney election would be what they need. We would expect to see a large increase in offshore drilling as well as onshore drilling. The stock has the most to gain of the industry as well as they have lagged competition since the black eye they got from the Gulf incident. We like them to increase nicely on a Romney win.
Investment Banks - Goldman Sachs :
Is it any hock that investment banks would love a Romney election? Here is the main reason: capital gains taxes. Romney wants to get rid of capital gains taxes or at least reduce them significantly. That type of move would definitely help investment banks. Movement into ore investments would definitely occur, increasing the capital for companies like GS. That process would increase demand in the stock market, which would help trading floors and increase gains for GS as well. Further, we would expect less regulation for investment banks, which would further help GS. Overall, GS and other investment banks would GREATLY benefit from a Romney election over Obama.
Regional Banks - US Bancorp :
Regional banks would be another big beneficiary of USB. The company is one of the most solid businesses in the industry and has led the industry. The company has increased despite tough regulations from Dodd-Frank for lending. Romney wants to get rid of Dodd-Frank, which is a big benefit to regional banks. The regulation removal will definitely allow for easier business practices for financials and more lending, which will lead to more profits. Romney has been very clear that he wants to retract Dodd-Frank. That move would be cheered by regional bank investors and send their shares soaring.
Two other potential ideas are reverse iron condors/butterflies in energy and financials. Those two areas have the most to gain/lose with this election, and we expect a wild reaction on the election. What a reverse iron condor/butterfly does is allow us to benefit from gains or losses in either industry as long as we get moves of certain levels. The two ETFs to use for this is SPDR Energy (XLE) and SPDR Financial (XLF). The plays we like are:
Reverse Iron Condor on XLF, Dec22, 73/74 Bull Call Spread and 72/71 Bear Put Spread
Max Gain: 18%
Reverse Iron Butterfly on XLF, Dec22, 16/17 Bull Call Spread and 16/15 Bear Put Spread
Max Gain: 43%
XLE will win 18% if it closes above 74 or below 71 on Dec22. XLF will win 43% if XLF closes above 17 or below 15 on Dec22.
Enjoy these picks!