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Investing During Election Season

Written By Briton Ryle

Posted February 5, 2015

It is said there are only two seasons in America – election season and campaigning season. Hence, it is never out of season to talk about the next presidential election and how the outcome could affect stocks.

Let’s begin with the most-likely presidential nominees, followed by the most-likely election outcome, and by the stock most-likely to benefit.

Who Will Win the Next Presidential Election

Seeing as current President Obama cannot run for office again (he knows; it’s because he won both of them), the 2016 presidential election will square two brand new faces against each other, since the last Republican presidential candidate Mitt Romney announced he would not be running.

Technically, then, the field is open to any number of candidates to toss their hats into the political ring for a shot at the title. But in reality, not really. Almost a full year before the primaries, we can already say with a measure of accuracy who the two candidates will be.

As reported by, Hillary Clinton leads in the polls for the next Democratic Party nominee with 60% of those polled. Having run for her party’s candidacy before, and having finished a very close second to Barak Obama makes her a highly visible and still favored choice for Democrats.

In the Republican camp, the race is not yet so clearly defined, with many new faces to choose from. Currently the polls have Florida governor Jeb Bush (son of and brother to the two Bush presidents) in the lead for his party’s nomination with 16.4% of those polled, followed by New York governor Chris Christie with 9.4%, and Arkansas governor Mike Huckabee with 9.0%.

However, without resorting to any conspiracy theorising, it’s pretty safe to conclude that Bush will clinch his party’s nomination. The Bushes are one of the most powerful families in America, and if they were not afraid to use the courts to get one of their own elected (remember that one?), then we can be certain nothing will prevent a third family member from sitting on the throne. Some say the string-pulling has started already, with previous Republican nominee Romney “voluntarily” stepping out of the way for Bush. Yes, a Bush nomination is pretty much a foregone expectation.

Hence we have our two combatants, Clinton and Bush – a fine opportunity for the Bush family to strike-back at the Clinton family in a rematch of the 1992 challenge.

Given the still ailing American economy, the desire for some king of change at the top is very much in the air. Despite remarkable progress in job creation over the past 6 years, Americans still do not feel confident in their financial situations. Wages are still stagnant, a falling employment participation rate has an ever diminishing percentage of Americans working, and the percentage of Americans forced to rent for not being able to afford their own homes is growing. As they say, voters vote on their stomachs; that is, based on economic concerns. Today, voters are still concerned over the economy, and their cry for change is loud.

As much as I would love to see the first female American president, it is almost assured that the next presidency will go to the Republicans. But what might investors expect from such an outcome? And how might they prepare their portfolios?

Companies to Benefit from a Republican Victory in 2016

1) When attempting to isolate which companies would benefit most from a Republican victory in 2016, we can start with projects the current Democratic administration has opposed – the most prominent one being the construction of the Keystone oil and gas pipeline linking Canada’s oil sands to refineries in Illinois and Texas, as well as to the Cushing, Oklahoma, distribution center.

“The Keystone pipeline expansion will become a reality,” predicts The Street. “The energy industry has to wait for it to be built, so first to benefit will be equipment and construction-related companies likely to pick up new business. Pick: Caterpillar [NYSE: CAT].”

Another beneficiary of the approval would be the pipeline’s owner, TransCanada Corporation (NYSE: TRP). Analysts have impressive price targets for the $46 stock to reach a mean target of $60 and a high target of $68, with earnings growth estimates of 14.75% annually over the next five years as compared to the S&P’s 8.21% earnings growth expectation.

2) As The Street points out, a bill to reform corporate income tax law has been tied to a $150 billion infrastructure stimulus package, meaning that the approval of the one would automatically garner approval for the other. Since corporate tax reform has long been a Republican rallying cry, we should expect this bill to pass, paving the way for the paving of highways, reconstruction of old bridges, and a whole array of new infrastructure projects which are sorely needed.

“When corporate tax reform takes shape, it initially will benefit … equipment and construction-related companies. Again, Caterpillar,” The Street identifies. That’s two solid votes for Caterpillar, with analysts still liking it despite a terrible 2014 fourth quarter which was largely due to the sudden drop in oil prices slowing construction in the energy patch in America, as well as in oil producing countries. Over the longer term, however, analysts still expect the $82 stock to reach targets as high as $110, with 3 strong buy, 5 buy and 15 hold recommendations out of 26 analysts, and with estimates of $9.69% earnings growth annually over the next five years.

Keep in mind that these estimates and recommendations are based on current conditions, and are not factoring-in the boost to Caterpillar’s business once the Keystone pipeline and the $150 billion infrastructure package are approved. Buying-in now before those changes take place would beat the flood of investors rushing in afterward.

3) A tax on medical devices imposed by the current administration will likely be removed by a Republican White House. “Since January 1, 2013, manufacturers, producers and importers of medical devices have been liable for a 2.3% US federal excise tax, known as the Medical Device Excise Tax (MDET), on sales made in the US,” informs PWC. “During the [2013] US government shutdown, the Republican Party tried to repeal the MDET. The effort failed – despite industry lobbying – so the MDET continues to apply.” But it won’t if the Republicans win the White House. They still hate the tax, and have vowed to eliminate it.

The beneficiaries here, of course, would be medical devices makers, which include the likes of Medtronic plc (NYSE: MDT), Baxter International Inc. (NYSE: BAX), Cardinal Health, Inc. (NYSE: CAH), Stryker Corporation (NYSE: SYK), Becton, Dickinson and Company (NYSE: BDX) and Boston Scientific Corporation (NYSE: BSX) to mention only a few.

Too Soon?

Of course, with still more than 1.5 years remaining to the next presidential election, reorganizing our portfolios according to an anticipated outcome may sound premature. But remember that changes in administrations do cause great changes within the business sector. And the key to capitalizing on any upcoming change is to get there before the crowd arrives.

As a safety precaution, however, any company you pick based on your anticipated election outcome should always be a company that you wouldn’t mind owning even if you guess the wrong way.

The above listed companies are just such stocks – with Caterpillar being the largest construction equipment maker in the world whose products continue to be the most in demand of all related equipment, TransCanada being one of the largest mid-stream oil and gas companies in North America whose pipeline and storage services are forever in demand regardless of the fluctuation of the oil price, and medical devices makers likewise enjoying high demand for their health products for decades to come as people live longer and extend their dependence on the companies’ products.

These will give you a home run if Republicans win the next election, but will still give you a solid base-hit if they don’t.

Joseph Cafariello