Forbes is pushing health care stocks while CNBC's Cramer leans on his, "Buy, buy, buy" button, assuming a Republican win in November.
Other pundits are calling their stock picks for an Obama win, and USA Today has even called in a team of astrologists to predict the outcome.
Am I the only one that thinks this kind of coin-toss investing is crazy?
If you want to pick stocks that will do well regardless of the outcome in November, then I've found a few that fit the bill.
One immutable truth in politics
Beyond all the political ideologies and all the guesswork into which industry will benefit after the election, there is one thing that we know both parties will do... spend money to get elected.
Political advertising could break the bank this year, with estimates topping $9.4 billion, up more than 40% from 2008, with the first presidential election under the Supreme Court's Citizen's United ruling allowing unlimited "free speech" from corporations and special interest groups. In a further nod to election spending, the Supreme Court also recently ruled that states cannot limit the amount of campaign spending by corporations.
Elections are just four months away. Fear and partisan rhetoric is peaking and the money is about to flood into broadcast and publishing companies.
Network broadcasters and publishers
Gray Television (NYSE: GTN) is a TV broadcast company with 36 stations in 30 markets -- all affiliated with the major networks. The company posted a five-fold increase in political advertising revenue in 2008 to $48.5 million from $7.9 million in 2007.
That year, the company reported a steep drop in revenue from other sources and political advertising jumped from 2.5% to 14.8% of total revenue. This year, management does not expect revenue from other sources to drop off, so the increase will add to the bottom line. With political advertising estimated up more than 40% in 2008 and revenue from advertising during the Olympic as well, I estimate a revenue increase of about 14% to $86.9 million from $76.2 million in the same quarter last year.
The company had only $0.01 in earnings per share for the second and third quarters last year, though it beat expectations for losses. The Street is expecting earnings of $0.08 per share this time around, but I think it could come out higher at about $0.12 per share given the increased revenue estimate I mentioned earlier and an operating margin around 27%. Shares trade for 11 times trailing earnings now, but a beat on the second quarter report would lower the price to almost six times earnings, well below the industry average of 15. Even a more conservative $0.10 per share and a consistent price multiple puts the stock at $2.64, more than 60% above its current price.
Gannett Co. (NYSE: GCI) is the largest newspaper publisher in the United States, with a circulation of 5 million. Newspaper publishing accounted for 73% of total revenue (about $5.21 billion in the past four quarters), while the broadcast segment is responsible for about 14% of revenue. The company has built up its digital presence recently and draws 13% of revenue from Internet assets, including a controlling interest in the job-hunting website CareerBuilder.
As with Gray Television, the company saw a big increase in revenue from the 2008 Olympics and presidential campaigns but was offset by weakness in other areas. Analysts are looking for $1.3 billion in revenue when the company reports on July 16, flat from the same quarter last year. Expectations for earnings per share are around $0.53 compared with $0.58 per share in the second quarter last year.
The shares are trading for just about seven times trailing earnings, and the stock looks compelling on a valuation basis. The company pays a 5.6% dividend yield and last year’s cash flow from operations of $805 million was sufficient to pay down almost a quarter of outstanding long term debt, so the dividend should be fairly safe. While the Street is only expecting revenue of $1.3 billion, I think increased political spending could boost that to about $1.34 billion, enough to achieve earnings per share of about $0.58 this quarter and a total of $2.08 over the last four quarters.
Stronger sentiment and a price-to-earnings ratio expansion closer to the industry level of around 9 would bring shares to the $18.72 range and a gain of about 30% from current levels.
As a bonus, the two companies' shares are heavily shorted: 6% of the total shares outstanding are shorted for Gray Television and 10% for Gannett. So a bounce in the share price could squeeze some of the short sellers and push prices up even further.
Risks to Consider: Investors should understand the difference between a trade made for a surprise announcement and one made for value. Surprise trades should be sold off after the event has occurred or the possibility has passed. One trade above, Gray Television, is almost exclusively a bet on a surprise earnings blowout with little to keep investors in the stock over the longer term. Shares of Gannett pay a healthy dividend and could be a candidate for value, though the biggest upside potential is in the next two quarters.
Action to Take --> Both stocks trade for well under the industry average P/E ratios and have significant upside due to the increased political advertising spending this year. Both companies have strong exposure to key states within the election and should beat on revenue expectations.