by Alyssa Oursler | October 8, 2013 9:17 am
Plenty of damage has already been done as the federal government shutdown enters its second week.
While the House passed a bill that approved pay for federal workers — in an attempt to erase at least a chunk of the estimated $300 million being lost per day — the Senate appears unwilling to do the same. Regardless, the effects spill far beyond the wages of government employees.
Countless contractors remain out of work, while important data for investors — like Friday’s job report — has been postponed. With no clear end to the budget battle in sight and the debt ceiling crisis looming, volatility is the order of the day.
Zooming in from the macro effects, several sectors and individual stocks have been especially hard-hit by Washington’s standstill, while the implementation of the Affordable Care Act (which caused the shutdown, but wasn’t stopped by it) has been a boon to others.
Let’s take a look at three winners and three losers since the shutdown began last Tuesday.
Return Since Shutdown: +6%
H&R Block (HRB) has been a winner for most of the year, boasting 50% gains since Jan. 1. This fall, though, the stock began to show some weakness, declining around 15% during August and September.
That downward trend reversed on Oct. 1 as Morgan Stanley analyst Thomas Allen upgraded HRB from “equalweight” to “overweight” and upped his price target from $25 to $33. The new target translates to 17% upside on top of its already blistering run — and the upgrade has already sent the stock 6% of the way there.
The reason for Allen’s bullishness is simple: Obamacare. See, H&R Block signed a deal with online insurance company GoHealth recently, which will allow the company’s customers to buy health insurance online.
According to Allen, the new federal mandate combined with the fact that H&R Block is already the nation’s biggest U.S. tax preparer creates a “significant opportunity” for this new program to take off.
Return Since Shutdown: +7%
Constellation Brands (STZ) has been another sizzling stock since the shutdown began nearly a week ago — whether you believe it’s because furloughed workers have be drinking away their sorrows, or because the company posted stellar second-quarter results Oct. 3 is your call.
Narrowing in on the latter theory, though, Constellation’s newly acquired Crown Imports business helped STZ post doubled sales and a 35% year-over-year improvement in net income for Q2 — good enough for an easy earnings beat. That was the third time out of the past four quarters than the beverage giant beat expectations.
The strong results also caused Goldman Sachs analyst Judy Hong to reiterate her “buy” rating on STZ and raise the price target from $65 to $75. That translates to more than 20% upside for a stock that already has soared nearly 75% year-to-date.
Return Since Shutdown: +13%
Finally, Tenet Healthcare (THC) has been an even bigger winner since the shutdown — and Obamacare — began.
The main driver for Tenet’s recent double-digit gains is simple: Tenet finalized its $4.3 billion purchase of Vanguard Health Systems on the first day of the nation’s new fiscal year. THC shares climbed more than 6% on that day alone, then continued climbing after Fitch called the deal “strategically sound.”
Not only does the Vanguard purchase double Tenet’s market in Texas — an obvious advantage — but such size is especially important in the face of the new healthcare law. As Fitch put it:
“The strategic rationale for consolidation in the hospital industry is encouraged by reforms favoring larger, integrated systems of care delivery, including the Affordable Care Act.”
On top of that, the new healthcare expansion is also good for Tenet since it’s expected to boost earnings for hospitals, considering fewer patients will be uninsured.
Return Since Shutdown: -4%
It’s hardly surprising that the shutdown has weighed on Lockheed Martin (LMT), considering it’s the world’s largest defense contractor by revenue. Since the budget battle remained unresolved on Oct.1, investors have backed out of LMT stock to the tune of 4% losses.
That total comes despite the fact that Lockheed bounced back slightly Monday, too. Since the Pentagon recalled its staff over the weekend, Lockheed trimmed the number of furloughed workers — but only from 3,000 to 2,400.
That’s not much solace considering defense contractor United Technologies (UTX) completely cancelled its furlough plans yesterday on the same news, though.
Still, Lockheed Martin has still been a winner for investors looking longer term. So far in 2013, LMT stock is nearly doubling the broader market’s climb.
Return Since Shutdown: -6%
While homebuilders soared during the first half of 2013, most big names in the space have since lost those gains and then some. D.R. Horton (DHI) is a prime example — and things have only gotten worse since the federal government shut down last week.
DHI has shed 6% since Oct. 1, which helped erase the stock’s early September recovery and puts shares at 6% year-to-date losses.
Already, Fitch Ratings has warned that furloughs at the IRS, Social Security Administration, and Department of Housing and Urban Development could mean a delay of verifications to finalize home sales.
And if the shutdown continues, things will only get worse for homebuilders. While the Federal Housing Administration has continued to endorse loans for now, the organization has warned that could change if funding is missing for an extended period of time.
Return Since Shutdown: -15%
Last but not least, we have to mention JCPenney (JCP) — even though the struggles of this failing stock have absolutely nothing to do with the federal government’s recess. Since Oct. 1, JCP stock has lost around 15% of its value. And since Jan. 1, shares have slid roughly 60%.
The recent implosion of the near-dead department store began thanks to chatter that JCP was looking to raise more money, followed by a secondary offering that did just that.
Unfortunately for investors in JCP stock, the damage from the secondary offering isn’t done. Instead, JCPenney is facing a class-action lawsuit saying it knowingly misrepresented its liquidity — which caused the the stock to trade at an inflated level and thus plummet when the truth came to light.
JCPenney probably wishes its struggles were caused by the government. Then, at least, they would be solved when the shutdown ends.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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