In case you didn’t know, there is an election coming up. Elections offer the chance for voters to make wholesale changes in government policy. These changes — even their possibility — can impact your portfolio in a major way. And that’s why we’re looking at election stocks now.
The differences between Joe Biden and Donald Trump are stark. Trump seems to prioritize the stock market over the real economy. Biden says he prioritizes those parts of the real economy where investment is most needed. He has been especially forceful on the need for business to invest against climate change, building renewable energy supplies to create jobs.
That means we can already see some winners from a Biden presidency. Renewable energy companies will be winners. Biden has also expressed support for American manufacturers and wants a faster Internet in rural areas.
That would be a good thing, but it would also force the Federal Reserve to remove the “punchbowl” of free money that has been keeping the economy afloat. Such a move would put a higher price on money, and that would help banks.
Anything he does will likely be done against the backdrop of a fading pandemic. According to Laura Gonzalez, Ph.D., associate professor of Finance at California State University, Long Beach, in an email to InvestorPlace, “we know from previous major pandemics that pandemics usually lead to public investments in the well-being of all residents, especially if coincidental with an economic downturn, to protect national security and international competitiveness.”
All these election stock picks are speculative. Trump could win re-election, and present policies might continue. Many people on Wall Street want that to happen, because Trump has been very, very good for Wall Street. Since Trump was inaugurated, the S&P 500 is up over 48%, even with the pandemic-induced plunge in March. But the election result itself is speculative.
The best thing about investing in Biden-friendly stocks is that they’re cheap. Many are classed as value stocks. They offer dividend income, which should continue to be paid regardless of the outcome. So even if you love you some Trump, these might be worth a hedge.
- Bank of America (NYSE:BAC)
- SunPower (NASDAQ:SPWR)
- Sunrun (NASDAQ:RUN)
- General Motors (NYSE:GM)
- AT&T (NYSE:T)
Let’s look more closely at these five election stocks.
Election Stocks for a Biden Win: Bank of America (BAC)
In a world where the Federal Reserve continues to drop cash from helicopters, Bank of America is worth little more than payment processor Paypal (NASDAQ:PYPL).
This could change after January.
When markets closed on Aug. 13, Bank of America and its $2.4 trillion of assets was trading at about $25.90, a market cap of $224 billion. Paypal, with $63 billion in assets, is worth $230 billion. When money becomes money again will you, like Warren Buffett of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), want your money in a Bank of America, or a fintech?
Buffett launched his position in Bank of America with warrants in the wake of the last decade’s financial crisis. But he’s still buying more stock. It’s his second-largest holding after Apple (NASDAQ:AAPL). He bought $2.1 billion more in the last quarter alone.
Buffett likes BAC’s return on tangible capital. This was 11.6% in the second quarter. Loan losses meant net income in that quarter was half what it was a year earlier, at $3.3 billion. But if the worst of the pandemic is over, and the bank has added $4 billion to reserves in case it’s not, more capital should be flowing to shareholders soon.
So long as money is basically free, which it will be through the pandemic, Bank of America admits its results will remain under pressure. But the key to successful investing is to buy when others are selling.
Big bank stocks will come back when money becomes worth paying for again. Investors like Buffett are discounting present performance and looking to a day when today’s crises are past and new ones emerge. They’re listening to BAC CEO Brian Moynihan, who sees the economy growing in 2021 and needing cash.
Instead of chasing today’s Covid-19 plays — the stay-at-home stocks, the vaccine stocks, and the like — Buffett is saying stay diversified. Yes, Bank of America is increasing loan loss reserves. Yes, its present quarter will be hampered by losses. But it will have a strong cash position at the end of the year and you buy stocks for tomorrow, not yesterday.
Right now, you can buy Bank of America stock at one-third off its price at the start of 2020. It sells at a discount to its book value after selling at one-fourth over that value in February.
Even Bank of America’s current 16-cent-per-share dividend yields 2.8%. This at a time when government bonds yield under 1%. That dividend should head higher next year. As the market tilts toward value, election stocks like Bank of America start to look attractive.
SunPower (SPWR)
SunPower is once again drawing investors. Shares have jumped over 30% just in August, after it announced net income of $19.5 million, 11 cents per share, on revenue of $353 million for the quarter ending in June.
As Zachary Cohle, assistant teaching professor of economics at Quinnipiac University, wrote in an email to InvestorPlace, “Like the Obama administration, a Biden administration would likely shift subsidies to green technology. With active government investment into green energy along with new technological innovations coming from both private companies and research universities, these green sectors are expected to expand greatly in the next four years. ”
Hopes are especially high for the spin-off of Maxeon (NASDAQ:MAXN), which makes solar panels. Maxeon is a venture with China’s Tianjin Zhonghuan Semiconductor, which had put itself up for sale in January.
SunPower is alive today because an oil company, France’s Total SE (NYSE:TOT), took a controlling stake in it for $1.37 billion in 2011. Total has helped make the Chinese deal happen as well, putting another $30 million into Sunpower common in February. Total’s financial backing gave SunPower a low cost of capital that helped it gain market share in the 2010s.
Hopes are high today because solar costs are falling below those of fossil fuels. Cheap microinverters from Enphase Energy (NASDAQ:ENPH), which has a strategic partnership with Maxeon, will let it make another run at the residential market.
SunPower hasn’t been waiting for political change. It has been arranging its business to make money despite the current environment since 2018, when it sold its microinverter unit to Enphase. Later that year it teamed up with Hannon Armstrong to create SunPower Capital, which can finance home systems. Early in 2019 it introduced a Design Studio that let homeowners get estimates quickly. The TZS deal gives it access to low-cost Chinese manufacturing, at a cost of 29% of Maxeon’s equity. It also gives Maxeon the latest Chinese technology, like dual-facing panels for utility-sized installations.
The result is a vertically integrated company that can address all solar markets. Residential dealers can design, manufacture, finance and build-out solar installations profitably.
SunPower will also go after commercial roofs. It claims to have a $3 billion pipeline in this area, which includes department stores like Target (NYSE:TGT) and Macy’s (NYSE:M). The June quarter report indicates the result can be profitable. New direct deals are already being signed.
Solar companies can now install integrated systems whose costs compare favorably with those of fossil fuels. As costs continue to decline, this should mean consistent profits.
Sunrun (RUN)
While solar power supplies keep increasing, profits from it do not.
Falling costs also mean falling prices, which can impact business models. In the PC market 40 years ago, buyers went from systems suppliers to PC stores, to superstores, then to buying direct from Dell Technologies (NASDAQ:DELL) in less than two decades.
So there was a huge sigh of relief when Sunrun (NASDAQ:RUN), the leading residential solar company, recently said it would buy its primary competitor, Vivint Solar (NASDAQ:VSLR) for $3.2 billion in stock. The sighs were deepest at The Blackstone Group (NYSE:BX), Vivint’s largest shareholder.
The resulting company should have close to $2 billion in revenue for all of 2020 and be able to cut expenses by as much as $90 million.
Sunrun and Vivint took different approaches to the market. Sunrun focuses on storage and can connect customer systems into “mini-grids” that are resilient when utility power goes out. Vivint is based in Utah and focuses on door-to-door sales, with many of its systems leased.
Both companies have been selling investment tax credits that are expiring, however. A Biden presidency, with a Democratic Congress, could renew incentives in the new Administration’s climate change policy. Trump and the Republicans won’t.
While waiting to see how the long term plays out, both Vivint and Sunrun are being hit in the short run by Covid-19, which is collapsing the economy.
Second-quarter results for both companies disappointed optimists. Vivint lost $87 million on revenues of $306 million, up about 9% from a year earlier. Sunrun lost $13.5 million on revenue of $181 million, down about 9%. The Sunrun loss was a surprise. Analysts had been expecting a profit. Shares dropped about 10%, but they’re still up over 200% on the year.
The third big player in U.S. residential solar is Tesla (NASDAQ:TSLA). They have been quiet since entering the market by acquiring SolarCity a few years ago.
Tesla has been working on perfecting its Solarglass product, which replaces roof tiles. Vivint and Sunrun, by contrast, install solar panels on existing roofs. Tesla CEO Elon Musk prefers a “one-click” approach to sales, in contrast to the longer sales-and-contracting process of Vivint and Sunrun. Tesla is hoping to do to the new SunRun what Dell did to PC stores in the 1990s. But Tesla has become the market’s Godot. Solar has become immaterial to the company’s results, so it never steps on the market stage.
Buying Sunrun means going into a $5.2 billion market cap for a profit-less company that may have $2 billion in revenue this year, assuming things work out. Combining the disparate business models of Sunrun and Vivint may deliver less savings than anticipated. The shape of the market in 2021, between the election and Tesla’s potential entry, remains uncertain.
General Motors (GM)
If the second quarter was the bottom for General Motors (NYSE:GM), it should come out of the recession OK.
The company lost $800 million, 50 cents per share diluted and adjusted, on revenue of $16.8 billion. It ended the quarter with $30.8 billion in liquidity after going through $7.8 billion of cash.
The numbers could have been worse. Analysts had expected a loss of $1.77 per share. They also expected revenue of $17.3 billion. The market, however, reacted by selling off. GM opens for trade Aug. 3 at about $24.75, down 32% on the year.
GM’s CEO Mary Barra has slowly cut costs, closed plants, and sold off foreign units, but the Coronavirus transformed the market faster. During the pandemic, GM has had to send laid-off auto workers to its truck plants. Barra is telling reporters she expects a short, sharp recession and recovery by 2021. Analysts think that may be optimistic.
GM says it will invest $20 billion in electrics and autonomous vehicles over the next five years. Five years ago, that would have been fearsome. But with Tesla (NASDAQ:TSLA) now sporting a market cap of $266 billion, about 7.5 times that of GM, the company looks outgunned.
GM has begun construction of a 30 GW battery plant in Ohio, comparable in capacity to the Tesla “Gigafactory” in Nevada. The Ultium battery produced there will eventually have 20 different configurations to power the entire GM line. A network of 2,700 fast-charging stations should be in place for the Ultium in 2025.
GM is also now gearing up to show its new electric flagship, called the Cadillac Lyriq. The company plans to launch 12 electrics by 2023, on all its brands. Most will be pickups and SUVs.
Analysts no longer believe Mary Barra concerning the nature of the car business. They no longer see this as a manufacturing business. They see it as Elon Musk sees it — as a technology business.
They see Tesla as having passed all its rivals and zoomed out of sight, even though its production is still a fraction of GM’s. They see GM’s gasoline-powered line-up as dinosaurs. They’re betting on a complete transformation of the infrastructure surrounding transportation, one that could be complete before GM gears up to compete.
They may be right, but they may also be wrong. If they have miscalculated, GM is a buy at these levels.
AT&T (T)
AT&T failed as an investment over the last decade because it put dividends ahead of opportunities in the cloud. The new CEO, John Stankey, starts with a wireless duopoly, a failing cable franchise, and the job of maintaining a dividend yielding 6.9%.
Stankey’s first moves have been to cut costs at WarnerMedia, the former Time Warner, which Stankey headed after Stephenson paid $85.4 billion for it in 2018.
New WarnerMedia head Jason Kilar, who formerly headed Hulu, has put Ann Sarnoff in charge of directing 600 layoffs. Sarnoff’s husband is the great nephew of legendary RCA chairman David Sarnoff. Her career includes stints at the BBC, Wall Street Journal, Nickelodeon, and the WNBA.
Kilar’s fiefdom had a terrible, miserable, and very bad second quarter. HBO revenue was down 5.2%, and WarnerMedia revenue down 3.9%, as theaters closed. Turner revenue was down 12.4%, due to cable-cutting and lower advertising. During the second quarter alone 1.25 million customers ended their cable subscriptions.
Since 2017, 41,000 jobs have disappeared. But AT&T still had over $153 billion in long-term debt at the end of June.
The good news is AT&T Wireless, which helped AT&T earn 83 cents/share during the quarter. The wireless unit has a shared monopoly with Verizon Communications (NYSE:VZ) and, now, T-Mobile (NASDAQ:TMUS). T-Mobile claims to have overtaken AT&T in market share but those claims are subject to question.
AT&T Wireless has a clear runway to 5G, a service it’s now turning on and advertising.
AT&T opened August 11 with a market cap of $218 billion. That’s just $8 billion more than Netflix and barely one-fourth that of the smallest Cloud Czar, Facebook (NASDAQ:FB), which is worth $744.5 billion.
Stankey means to do better. With AT&T Wireless, and the chance he can sell the media assets for something close to what his predecessor paid for them, he can.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL and BAC
