Political Trend Investing-These Stocks Will Win if Romney Does
Adem is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Every four years in these beautiful United States we go to the polls and make a choice for who we think is the best person to lead our country. But who is best for your portfolio? So few people seem to make political analysis an integral part of their investing analysis. By that I don't mean generically "who will be best for the economy" or who will be the best, period. Rather, how will an election’s outcome or certain political trends impact different sectors of the economy--and which ones stand to benefit?
As an investor I think we should all try to be non-partisan, at least when it comes to our money. However, for the sake of this article, let's say you feel that Gov. Romney will win this year’s Presidential election. By finding the stocks in businesses that would most dramatically benefit from a Romney win and buying them now, you'll be investing with the wind at your back after November. So which stocks will fly highest if the election results in a Romney Presidency?
Many have accused Gov. Romney of being too vague regarding his platform. I don't know if that's true or not, and frankly I don't care if it is. What I do know is there are at least two or three campaign promises he's made pretty consistently, promises that he would have to try to push into policy if elected. The first revolves around energy.
"I like coal"-Gov. Mitt Romney at the first Presidential debate of 2012
Companies involved in coal production have been absolutely hammered this year as their earnings per share and stock prices have seen a dramatic slide. Peabody Energy (NYSE: BTU) for one, has seen its annual earnings per share drop from $3.76 in FY 2011 to $1.83 this year, and its current share price of $22.38 is far off its 52 week-high of $47.48--and this is arguably the top performer in this sector! Competitors Arch Coal (NYSE: ACI) and Alpha Natural Resources (NYSE: ANR) have fared much worse. Alpha Natural has seen its annual EPS swing from $1.57/share to a loss of $1.50/share, while Arch Coal has gone from $1.07 to a loss of $0.45; both stocks are trading near 52-week lows and have seen their share price fall fourfold this year.
If there's one industry that stands to benefit most from a Romney Presidency, I believe its coal. This is because it touches on two of the Governor’s largest platform positions. Increased coal production and pulling back EPA regulations are plans he's laid out to both make the U.S. energy independent and to help deliver on his promise of creating 12 million jobs. It's highly likely that as President Mitt Romney would push hard for these policies, so therefore buying stock in coal producers now could produce a multi-bagger in under a year if Mitt see's this through. Talk about an opportunity you don't see every day!
Come by Rail
Railroads had been one of the hottest sectors on Wall Street, delivering outstanding EPS growth thanks to an ability to increase prices. That party has certainly waned as of late due to steep decreases in coal shipments and a pre-earnings downward EPS forecast by rail heavyweight Norfolk Southern (NYSE: NSC). The stocks of rail companies have now stagnated and could be considered a value if you were bullish on coal; take a look at some popular value metrics of these large rail companies contrasted against the percentage of their revenue that relies on coal.
|Company name||P/E||PEG||% of Revenue from coal|
|CSX Corp (NYSE: CSX)||12.02||1.36||26.2%|
|Norfolk Southern Corp||11.47||0.84||26.1%|
|Union Pacific Corp (NYSE: UNP)||15.80||1.14||
As you can clearly see, Union Pacific trades at a richer valuation while it relies less on coal; that's not by accident. Every investment has a risk-reward scenario that you'll need to consider, and if the coal producers offer the highest risk and reward I'd also consider the rails the next step down the ladder on both accounts in the near term.
However, as a whole I feel the rails are the best investment play on a Romney win, and just a better investment in general. While rails rely on coal and would benefit from the upside Romney’s policies could deliver, they're not without other revenue sources. They ship goods for many industries, including autos, agriculture, and housing, so a continued slide in coal could be offset by gains elsewhere.
Furthermore, I personally feel that in the long term, the rails are on the right side of two long term bullish trends. First and most importantly, it is nearly three times more fuel efficient to ship goods by rail than it is by highway. With no end in sight to increasing fuel prices, businesses will have little choice but to continue to pay up for rail shipments.
Also, with a global population of over 7 billion people who are living longer and becoming more affluent, I think the rails will benefit from emerging middle classes across the globe. These economies will need exports and will need to purchase more food, cars and energy. Simply put, I feel railroads offer you the upside of a Romney-fueled coal rebound, while still offering you an insurance plan; the separate upside of two long term bullish catalyst--talk about investing with the wind at your back!
Everybody Freak Out
Finally, the other industry that could greatly benefit from a Romney Presidency is the defense industry. Defense spending has been cut back somewhat, as was to be expected with the ending of the Iraq War. But with the upcoming "fiscal cliff," the industry could face another $600 to $700 billion hit. Gov. Romney has pledged to increase the defense budget by up to $2.1 trillion. Make no mistake about it, defense and national security is about a lot more than our safety, it’s a big business that creates tens of thousands of jobs. Here are just a few of the companies that would benefit from an increased defense budget.
|Company name||P/E||PEG||Market Cap||Dividend yield|
|Lockheed Martin Corp (NYSE: LMT)||11.05||1.55||$30.6B||4.87%|
|General Dynamics Corp (NYSE: GD)||9.82||1.11||$23.7B||3.03%|
|Raytheon Co (NYSE: RTN)||9.66||1.13||$18.4B||3.60%|
Stay Objective This Campaign Season--Your Portfolio Approves This Message
"The most important quality for an investor is temperament, not intellect... You need a temperament that neither derives great pleasure from being with the crowd or against the crowd."-Warren Buffett
As hard as it is to separate your emotions from your investments, to invest "politically" and stay objective is nearly impossible. It's like betting on your favorite or most-hated football team, times 1,000, but I'm going to ask you to do it anyway.
Although I've gone through a few sectors that should benefit if Mitt Romney wins the Presidency, this doesn't mean that I'm endorsing either candidate, nor am I stating that I think either candidate is poised to win. With the endless bombardment of campaign ads, flyers and debates, combined with the very real challenges we face as a nation, I can't ask you to be without very emotional political opinions.
But you'll benefit if you can separate your personal political feelings and your views on how politics will impact your portfolio. If you can keep an objective perspective on the latter you can use political trends to your benefit. You'll be able to pick stocks that are poised to benefit from those trends while the general public is too wrapped up in the political theatre to notice. I won't say this is easy, but it's essential. Nothing, not CEO's, employees or even new products and services impact the markets as much as politics. If you think otherwise you're kidding yourself--and that's a message I cannot approve.
Adem Tahiri owns shares of CSX. He has no plans to add or close his position in the next 72 hours. The Motley Fool owns shares of General Dynamics, Lockheed Martin, and Raytheon Company. 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.