Obama or Romney? How to Invest Based on the November Election

It’s Nov. 7. Staffers on one presidential campaign are packing their bags for Washington, D.C., while those at the other campaign are posting resumes on Monster.com. Meanwhile, as TV political pundits wallow in post-game analyses like a pig wallowing… er … in whatever pigs like to wallow in, investors are actually relieved.

The unknown is now known.

And now it’s time to reposition their portfolios based on the change or lack of change in the political landscape.

Personally, I’ve never been a huge believer in reactionary trading based on election outcome. However, there are sectors that will undoubtedly perform better or worse based on which administration is driving the bus. Some are relatively predictable. Some may surprise you…

Either way, even if you don’t plan to restructure your portfolio any time soon, it’s important to know which types of stocks could shine or dive in the next presidential term.

President Willard Mitt Romney
It’s pretty easy to guess which sectors would benefit from a Romney victory…

Big Oil — Historically, Republican presidential administrations have always been a friend to Big Oil. Don’t expect anything to change. The usual suspects are the biggest names: ExxonMobil (NYSE: XOM) and Chevron Texaco (NYSE: CVX). These two stocks donate piles of money to the candidates and get the most favorable regulatory (or lack thereof) treatment.

My favorite of the bunch, which I’ve written about before, is ConocoPhillips (NYSE: COP). ConocoPhillips is cheap on a forward price-to-earnings (P/E) basis of roughly 10 and its dividend yield of nearly 5% outstrips some of its peers by more than 200 basis points in some instances.

Providing for the common defense — I’m not trying to sound like a conspiracy theorist when I say that Republicans typically love the military industrial complex, but they do (although their great grand pappy, Dwight D. Eisenhower, warned them against it). Standout stocks would be DuPont (NYSE: DD), which makes things go “boom,” and is one of the world’s largest manufacturers of heavy ordinance. Then, we have General Dynamics (NYSE: GD) and Boeing (NYSE: BA) which are really good at defense projects that take too long and usually go over budget. Just sayin’…

Laughing all the way to the banks — With the intense Republican disdain for Dodd Frank financial reform, shares of the mega banks could see a pop as a result of a Romney win. However, I will not name names. There’s too much risk and too little reward associated with bank stocks.

Banks are undergoing major, generational shifts thanks to the destruction caused by the excesses of the past. Earnings streams are still evolving in this new environment and, despite rosy news, asset quality is still anemic at best. Citigroup (NYSE: C) and Bank of America (NYSE: BAC) are prime examples. Lastly, dividend yields for bank stocks are virtually non-existent. I would avoid them at all costs — these are still poor long-term investments.

President Barack Hussein Obama… again
A second Obama term would create investment opportunities in some areas that you may expect and, possibly in those you may not.

Health care for everyone — Affirmed by the Supreme Court, the Affordable Care Act (aka “Obamacare“) continues to evolve and confuse. But despite the fear, many companies stand to benefit.

The large pharmaceutical companies locked in their franchise a long time ago and, since they basically can calculate to the penny how much they are getting paid regularly, earnings modeling should be pretty darn predictable. My perennial favorite is Eli Lilly (NYSE: LLY). Generic drug manufacturers should do well, too. Stocks you should be looking at would include Mylan Labs (NYSE: MYL) and Teva Pharmaceutical (Nasdaq: TEVA), which dominate the generic drug market.

As health care strives to become more efficient, look to everyone from diagnostic equipment makers to software writers to cash in. General Electric (NYSE: GE) is one of the kings of the equipment hill. On the health care management software side, small-cap Computer Programs and Systems Inc. (Nasdaq: CPSI) deserves further researching. The company is a pioneer in health care management software, specializing in smaller institutions that are often ignored by bigger players such as McKesson (NYSE: MCK).

And to go hand in hand with pharmaceutical companies, the big drug retailers are also a good idea. Since the operative word in the Affordable Care Act is “affordable,” the nation’s two largest drugstore chains, Walgreen’s (NYSE: WAG) and CVS Caremark (NYSE: CVS) are gradually providing actual, basic clinical services on site. Usually administered by a physician’s assistant (PA) or a nurse practitioner, this trend could grow as the health care system looks to alleviate pressure on hospital emergency rooms and overstretched primary care physicians.

The REAL Star Wars — While many fear President Obama’s second term would include the military being the target for spending cuts, but this may not be true. As conventional assets shrink, look for more development and innovation in smart, unmanned weapons and defense systems.

Standout stocks include L 3 Communications (NYSE: LLL), which makes cutting-edge military communications gear and the bargain priced Lockheed Martin (NYSE: LM), which builds the lion’s share of unmanned drones the armed forces are increasingly putting into service.

Got gas? — As the nation’s newfound wealth of energy resources continues to come online, the natural gas and liquids transportation companies will be a boom akin to what the railroads were to “manifest destiny” of the 19th century. Energy master-limited partnerships (MLPs) are the best way to play this trend.

On the natural gas side, I like Boardwalk Pipeline Partners (NYSE: BWP), which sports an awesome 7.5% yield, and analysts and management are comfortable with the company’s ability to maintain the distribution. I’ve also been watching Buckeye Partners LP (NYSE: BPL), because of its near-9% yield. The fact that analysts are comfortable with the quality and stability of the distribution isn’t anything to complain about, either.

Parting shot — Lastly, for some strange reason fueled by Internet rumor, ammunition sales spiked a bit after President Obama was elected in 2008, most likely due to an irrational fear of stricter gun-control laws. Crowd psychology rarely changes. Unfortunately, I expect the same happening. A great way to trade this would be Winchester manufacturer Olin Corp. (NYSE: OLN), which I’ve written about before. This is a great company and an interesting stock.

Action to Take — > As I mentioned earlier, I am not a knee-jerk reactionary type when it comes to portfolio management. Decisions to buy or sell based solely on an election outcome can often lead to remorse. However, it’s important to know that presidential elections do dictate and influence national policy, which in turn affect the business cycle. Prudent investors should instinctually review their investment portfolio and position accordingly if needed. And remember, vote early, vote often.

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