Everyone wants to know which sectors are likely to be immune to political changes — and which stocks from those sectors will actually thrive under Obama’s budget and political-social ambitions. With that in mind, let’s take a closer look at the various sectors of the financial markets to see which companies might either be immune to or at least far away from the focus and criticism of any current Washington, D.C. trends. All companies have implied market risks tied to them, but there are several stocks that seem likely to survive, and even thrive, under the current administration’s plans.
Ford Motor (F) is an unlikely Obama winner on the surface, but the last year speaks for itself. Mulally has turned out to be a stellar CEO, and the administration would hope that the future GM and the future Chrysler could be half as profitable as Ford has been. Ford did not go to the government hat-in-hand even if it did win in the Cash for Clunkers program. It posted a 2009 profit, and it seems to be immune to customer and taxpayer backlash as the U.S. auto sector is getting close to back on its feet. It seems to have most of its union issues at bay, which is pro-Obama as well. Ford now wants to remain profitable, and it makes sense that the Obama administration would point to an American success story such as Ford as the model for GM and Chrysler to follow. The big risk here is the economy and the chance of a double-dip recession, but that is true for most manufacturers today.
Next is the initiative of energy efficiency, which is cheaper and easier to achieve today than adding a bunch of new energy sources. One company already winning in this area is Itron (ITRI), which produces smart meters for electric companies. The opportunity here is exponentially larger than what the company has as orders on the books, and it has made announcements of smart meter wins in 2009 on stimulus money. It was also just recognized by the DOE for smart grid solutions contributing to the clean energy economy. The big issue with Itron is one of valuation versus opportunity, but if the company lives up to its 50% earnings growth this year, then it trades “only” at about 21-times forward earnings.
Kimberly-Clark Corporation (KMB) may be very immune to future policy changes. While it is in manufacturing and therefore has emissions, the reality is that the only time when consumer products companies ever come under fire is when there are major product recalls. The company recently boosted its dividend and has a yield close to 4% and a projected 2010 P/E ratio of a mere 12-times earnings. In the world of attacking domestic companies, it would seem that there are easier fish to fry than companies that make tissues, diapers and more personal care products.
As far as Michelle Obama’s childhood health initiatives go, there is one food company that could be a beneficiary. Although Smart Balance (SMBL) is not a no-carb, no-fat food producer, the company does produce low-transfat buttery spreads and low-fat cheeses. It also has HeartRight foods and other foods that target Omega-3 and antioxidants. The lack of any real attack above what we have seen already against fast food and snack food companies has been almost shocking, and if one company in the food sector can avoid scrutiny without having to be all-organic it is Smart Balance. The issue here is that at $5.58, the stock’s 52-week trading range is $4.83 to $8.73. The stock has failed to perform and has been dead money for two years. The revenue growth has stalled, and the valuation for times-earnings is very high. This play is not without issues, but if one food company can withstand the fat-wars, it is Smart Balance.
The president’s budget includes incentives for increasing output and input for better educators and smarter students. Archipelago Learning, Inc. (ARCL) is in a crowded space in the education sector, but the fairly recent IPO offers solutions for both students and educators. The stock has been quiet money, and an ongoing issue in the education space is that lower-income families have a harder time paying for “get-ahead education” regardless of tax incentives or tax breaks and subsidies. But Archipelago Learning offers lower-cost SAT preparation and subscription-based online education services for instruction, assessment and productivity tools geared to improve the performance of both educators and students. The company claims that “during the 2008-2009 school year, Study Island products were utilized by approximately 8.9 million students in 21,000 schools in 50 states.”
One question that constantly comes up is which banks will survive and thrive under the new regulatory climate. It is the larger regional banks that do not have large trading departments or untold billions in government loans that can still grow and compete on the loan front. The iShares Dow Jones US Regional Banks (IAT) contains more of the regional banks you have heard of, but it is thinner volume than some investors prefer to see. The SPDR KBW Regional Banking (KRE) is very liquid, with the caveat that many of the banks inside this ETF are unheard of if you have not followed the regional banking sector. It also seems unlikely that any of these banks will be broken up, but you have to consider that not all of the banks inside these two ETFs escaped the financial meltdown totally unscathed. These two ETFs probably have a premium built in as they have traded up so far in 2010. (See also: 4 Bank Stocks Thrilled About Obama’s Bank Plan.)
USEC Inc. (USU) was an Obama wild card, but it has just become a “flavor-of-the-day” stock thanks to the new budget which effectively doubles the provisions for nuclear power loan guarantees. Although this part of the budget is not yet a guarantee, it has not been completely given a green light by Wall Street either — and there is a history of disappointments from 2009 that are hard to erase the memory of. The administration had been anti-nuclear power going into the election but then became more accepting of it. Then, last summer, the DOE denied the loan guarantee that USEC was counting on for its new centrifuge project in Ohio. If nuclear is really going to be included, then USEC is the top play here with the largest leverage to the upside and perhaps what may already be a floor underneath. The stock was at $3.79 before the run; now shares are above $4.00 after our Obama Nuclear Stock Option Alert. Additionally, the company has the Nuclear Nonproliferation Megatons to Megawatts Program, and that is a win because the administration said that further nuclear weapon elimination between the United States and Russia is on its way.