Red stocks, blue stocks
Investor Daily: Here's how to choose a presidential portfolio.
NEW YORK (Fortune) -- Does your faith in your candidate extend to your investment portfolio? If so, this column is for you.
While Barack Obama, John McCain and their respective supporters may argue over who would be a better president for the stock market, there are specific investments for which no debate is necessary.
The candidates' policy proposals so favor or so disfavor particular companies and industries that the outcome of the election (assuming we have a clear winner) is almost certain to have an impact when markets open Wednesday - though given the country's fiscal and economic condition, how long any victory glow lasts is another question entirely.
Let's start with the blue stocks - investments most likely to benefit from an Obama win and from Democratic gains in the House and Senate.
PowerShares WilderHill Clean Energy Portfolio. The case for buying this exchange traded fund, which owns shares in alternative energy companies, is simple. Obama has said that his top priority as president will be ending U.S. dependence on Middle Eastern oil, and that the path to freedom lies in investing $150 billion over the next 10 years in renewable energy. He also wants to require utilities to generate 10% of their electricity from renewable sources.
All of this adds up to a potential bonanza for the solar, wind, biofuel and other companies included in the PowerShares WilderHill (PBW) ETF. Best of all you'd be buying low: the ETF's price has sunk from $29 to $10 a share since last December.
Jacobs Engineering. Jacobs is another buy-low, blue-stock opportunity. Obama's economic stimulus plan calls for the creation of a "National Infrastructure Reinvestment Bank" that would spend $60 billion over 10 years on roads, bridges, ports, airports and rail lines.
This would a boon to Jacobs (JEC, Fortune 500), a contract engineering firm that specializes in municipal infrastructure. The stock is down 63% this year due to concerns about whether in a weakening economy states and cities can afford new infrastructure projects.
Municipal Bonds. This isn't a stock pick, but munis are a no-brainer for anyone in a high tax bracket. Obama has made no bones about the fact that he intends to raise income taxes on anyone earning more than $250,000 a year, and with Democrats controlling both houses of Congress, he's likely to get his way. That would make munis' tax-exempt income more valuable.
Plus, munis are great value even at today's tax rates. Munis normally yield less than U.S. Treasury bonds, but today the yield on a triple-A-rated 10-year municipal bonds is 4.48% versus 4.0% for comparable Treasuries, according to Bloomberg.
Our red stocks won't so much benefit from a McCain administration as much as they will gain in the absence of an Obama administration.
Take utility stocks, for instance. One reason utilities are popular is their high dividend yields. Chuck Gabriel, a veteran Washington analyst now with Capital Alpha Partners, thinks the utility sector has been depressed by the likelihood of Obama rolling back President Bush's 2002 dividend tax cut. (Dividends used to be taxed as regular income; now they're taxed at 15%.) Thus a McCain upset should lead to a big rally in utility stocks.
Our favorite way to play this: Utilities Select Sector SPDR (XLU), an ETF with 4.1% dividend yield.
Transocean. The conventional wisdom in Washington is that Obama would revive at least a partial ban on offshore drilling in the Outer Continental Shelf were he elected, whereas McCain "would push very hard for more drilling," says Dan Clifton, Washington analyst for Strategas Group. That's good news for the offshore drillers. Transocean (RIG) in particular is incredibly cheap, trading at only five times projected 2009 earnings.
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