Election 2012 and Your Portfolio

Callum is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

ELECTION 2012

Election 2012 is one of the most contested elections in the US for a long time; with some saying it is as important as the 1980 election. But what you care about most is how will this affect your portfolio. You want to make sure that when Nov. 6 comes around, you are prepared to make money.

If Romney Wins

If Mitt Romney wins, you would want to own defense contractors. In 2013 there are $1 trillion in defense cuts (over 10 years) that would adversely affect the entire defense sector, including companies like Lockheed Martin (NYSE: LMT). LMT gets 61% of its revenue from the US, so these cuts will hurt profits and margins. Romney has repeatedly said that he won't cut defense spending; during the Oct. 3 debate he stated this over and over again. Also, according to Real Clear Politics the Republicans have 226 safe seats in the House. You only have to control 218 to have a majority, so if Romney wins he will have the legislative power (even with a Democratic Senate) to at least reduce, if not eliminate, these cuts. This will make investors very happy and I would expect to see a 10% bounce across the board in the defense sector. I think the best way to play this is Lockheed because out of all the major defense contractors it has the most diverse revenue stream in the sense that it only gets 61% of its revenue from the US, while a company like Northrop Grumman (NYSE: NOC) gets 90% of its revenue from the US. So if you are certain that sequestration doesn't go through then NOC is a better bet because in theory its stock will rise more, but if you aren't 100% sure they won't cut the defense budget pick LMT. Obama supports cutting the defense budget, so be careful if he wins and you own defense contractors. 

If Obama Wins

If Obama wins you want to own hospital stocks, such as HCA Holdings (NYSE: HCA) and Tenet Healthcare (NYSE: THC). Why? Before Obamacare, these companies had to cover the costs of uninsured Americans showing up at their emergency rooms. Now, however, because everyone has to get health insurance, these companies will be treating more insured patients and won't have to cover the costs of those who don't have health insurance (or at least there will be less people without health insurance). Proof of this was seen after the debate. When Romney emerged as the debate winner, these stocks dropped because worries arose over whether or not Obamacare (Patient Protection and Affordable Care Act) would get implemented. Romney has said he would keep the "popular parts" of Obamacare, but hasn't given enough color as to what those parts might be. I don't have a favorite in this area, but if you think Obamacare will stand as is HCA and THC are 2 perfect companies for that play. According to Real Clear Politics the Democrats have 46 safe seats in the Senate (to the Republicans 43), so if Obama wins and he can hold onto the Senate, Obamacare will presumably stand as is (more or less).

Final Thoughts

While we all have our own ideologies and personal political opinions, it is always a good idea to take a step back from politics and look at it through an investor’s microscope. Even if you really want your candidate to win, it is always a good idea to place your bets based on facts and polling data, not political parties. If the candidate you want to win loses, at least you can profit from it. That's about as good as a silver lining gets.


callumturcan has no positions in the stocks mentioned above. The Motley Fool owns shares of Lockheed Martin and Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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