Debates and attack ads aside, the U.S. presidential election remains too close to call — all the more reason for investors to position themselves to profit whether Mitt Romney or President Barack Obama wins in November.
As we noted last month when we looked at stocks to own if Romney wins, certain industries tend to perform better under Republican policies, others under Democrats.
Here's a look at six stocks that would benefit if President Obama wins Election 2012.
Health Care Stocks Helped by an Obama Win
No matter what, one of the top issues will continue to be health care, with a particular focus on the Patient Protection and Affordable Care Act (PPACA) – otherwise known as "Obamacare."
Unless the Republicans sweep both houses of Congress and win the White House, Obamacare will remain the law of the land.
Large hospital chains benefit from the survival of Obamacare because it expands health coverage to millions of previously uninsured individuals, including those with pre-existing conditions. That will significantly reduce the burden on hospital emergency rooms, which must now treat these patients even if they can't pay.
- Health Management Associates Inc. (NYSE: HMA), recent price $8.16 – HMA operates 66 hospitals with more than 10,300 beds, most of them located across the South and in Appalachia, where the current percentage of uninsured patients is among the highest in the country. Increased reimbursements under Obamacare could spark a turnaround in HMA revenues and earnings, which have fallen in four of the last five quarters, slipping from 20 cents a share in the second quarter of 2011 to just 16 cents in Q2 2012. The stock pays no dividend, but offers good growth potential since its current price is well off the five-year high of $11.32 set in April 2011.
Other winners under Obamacare would be companies that receive large research and/or specialized treatment grants from government agencies. The National Institute of Health (NIH), for instance, could see budget cuts of 5% or more if Romney wins and begins to rein in discretionary federal spending.
A good bet in this category is:
- Thermo Fisher Scientific Inc. (NYSE: TMO), recent price $60.92 – Any time you get a lab test or a diagnostic analysis, it's a good bet TMO either helped develop the process or trained the technician performing the tests or analyses. The company operates around the globe, offering both training and scientific support staff for hire to doctors, clinics and hospitals. Revenue growth was flat for several years thanks to the recession, but jumped sharply in 2011 to $11.725 billion, sending diluted earnings per share up 20.7% to $3.20 a share. TMO also declared a new quarterly dividend of 13 cents a share starting in late 2011. The stock is near its 52-week high, but still off its 2011 peak of $65.18.
Construction Stocks to Own If Obama Wins Election
Another sector rooting for a President Obama victory is homebuilders.
President Obama, unlike Romney, is likely to re-appoint Fed Chairman Ben Bernanke when his term expires in 2014. That will probably mean a continuation of the Fed's loose money policy and support for efforts such as the Home Affordable Modification Program (HAMP), to aid troubled homeowners.
The shrinking number of foreclosed homes coming on the market if President Obama wins election should benefit many homebuilders, especially:
- Lennar Corp. (NYSE: LEN), recent price $37.87 – Lennar, which both builds single-family homes as well as townhome communities, and finances buyer mortgages, operates across Florida, one of the country's hardest-hit areas in the recent housing crash. The company saw revenue cut in half between 2007 and 2010 and lost more than $1.1 billion in 2008. However, it returned to profitability in 2010 and earned 48 cents a share in 2011, with $2.93 projected for this year. As a result, the stock has rallied substantially from a 2011 low of $12.72, but it remains well below pre-crash highs of about $67. The stock pays a modest annual dividend of 16 cents a share.
A President Obama win could also mean more stimulus in the form of infrastructure spending, ranging from roads and bridges to water systems and sewers. That would boost engineering and construction firms, including:
- URS Corp. (NYSE: URS), recent price $36.79 – A major provider of engineering services for federal and state projects, URS also consults on environmental and energy issues, as well as offering training programs to government and private-sector companies around the globe. The company showed both an operating and overall loss in 2011, but both were tied to major acquisitions completed in 2011 and May of this year. Since then, URS has reported three straight quarterly profits and is projected to earn $4.25 for all of 2012. The stock is up slightly from its 52-week low of $31.51, but still well off its February 2012 peak of $47.16. The 80-cent annual dividend provides a 2.2% yield.
Green Stocks and Discount Retailers
President Obama has promised to extend current tax credits to providers of renewable energy, such those operating wind farms, and solar fields.
These preferences have already benefited both the profits and stock prices of some firms in the green sector. For example, NextEra Energy Inc. (NYSE: NEE), America's largest wind power company, has seen its price climb from $52 a share in 2011 to $71.08. But an even better option could be:
- Excelon Corp. (NYSE: EXC), recent price $35.85 – Though primarily an electric utility holding company – it's the parent of Commonwealth Edison Co. – EXC qualifies for green energy credits because it provides about 20% of the country's nuclear energy, with 17 reactors in 10 power plants. The stock took a huge hit in the wake of the recession and Japan's nuclear disaster, falling from a five-year high of $90.55 to current levels. While earnings have also slipped a bit the past two years, they remain strong at $3.75 a share (in fiscal 2011), more than enough to cover the annual dividend of $2.10 a share, which equates to a healthy yield of 5.82% at current prices.
A President Obama victory would also likely mean more economic support for low-income and middle-class families, and that could bode well for retailers serving that sector, such as Dollar Tree Inc. (Nasdaq: DLTR). A good choice here would be:
- Family Dollar Stores Inc. (NYSE: FDO), recent price $69.05 – FDO's stock price has been on a steady climb for the past two years, but that has been supported by a steady rise in revenues (from $7.8 billion in FY2010 to $9.3 billion in the year ended Aug. 25, 2012) and earnings (from $2.62 to $3.64 a share). A low-end retailer handling everything from food and pet products to household goods and basic clothing, FDO has also steadily boosted its quarterly dividend from 12 cents in December 2007 to the current 21 cents a share.
One final point if President Obama wins election: Unless the Republicans gain strong control of Congress, a broad renewal of the Bush-era tax cuts will be unlikely – and that will mean a sharp hike in taxes on stock dividends, which will lose their qualified status.
That means, wherever possible, income investors should shift their high-yield stocks into tax-deferred retirement accounts and concentrate on growth issues in taxable accounts since the increased tax bite will be smaller on those stocks.
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