The political winds are shifting in Washington D.C., and investors should prepare themselves for significant changes. With President Biden now being officially inaugurated, it’s high time to prepare our portfolios for the new administration.
To be clear, most good companies will continue to prosper regardless of what the government is up to. But for certain firms, Congress and the President’s actions will be a major tailwind. Here are seven top stocks to buy that should enjoy a boost as President Biden gets to work:
- Facebook (NASDAQ:FB)
- The TJX Companies (NYSE:TJX)
- Emerson Electric (NYSE:EMR)
- NextEra Energy (NYSE:NEE)
- Lockheed Martin (NYSE:LMT)
- Brown-Forman (NYSE:BF.A, NYSE:BF.B)
- Visa (NYSE:V)
Here’s a closer look at what makes the Biden administration a promising catalyst for each of these companies.
Stocks to Buy: Facebook (FB)
The events in Washington D.C. earlier this month have certainly put social media companies in the spotlight. Social media executives will have to answer for their decisions around controversial speech. And there may be a hit to user numbers as well. Twitter (NYSE:TWTR) stock, for example, tumbled immediately following its move to ban President Trump’s account as many users defected to rival platforms.
That said, weakness in social media stocks could be an opportunity. None more so than with Facebook stock. There has been a great deal of speculation about how the company will look this decade. Regulators may target Facebook with severe anti-trust measures, perhaps even splitting up the company. It’s understandably why traders haven’t been rushing to buy FB stock in recent weeks.
However, President Biden is likely to be good news for the social media giant. As far as we know, Biden has no personal animus toward Facebook or Zuckerberg, unlike various other politicians. And Biden didn’t prioritize regulating big tech either as part of his presidential campaign. Facebook should be able to navigate more freely in coming months than it has done in the past. Hopefully political tensions will cool after inauguration as well, giving Facebook more leeway on the moderation front.
We’ve seen FB stock slide numerous times on previous political concerns. Who can forget the Cambridge Analytica scandal and all the ensuing drama there? Up until now, every dip in FB stock caused by politics has been a buy. I see little reason to think that will change under President Biden.
The TJX Companies (TJX)
Also benefitting from stimulus, we have the TJX Companies. This is a retail outfit most known for its TJ Maxx brand of discount stores. This segment of apparel shopping tends to fare well in economic downturns.
That could be doubly true this time thanks to the second round of economic relief checks. The government is sending folks money because it believes that this is one of the fastest ways to get that cash out and into the economy. If you cut corporate taxes, for example, it’s not clear how much of that will stimulate the economy in the near term. However, send people money directly and they’re largely going to go out and buy stuff immediately. As of this writing, Biden is proposing that the government will send out an additional $1,400 to individual taxpayers, and the idea appears to have bipartisan support.
TJ Maxx is exactly the right sort of business to take advantage of this extra cash. Expect the company to post several quarters of strong earnings in 2021 as a result. As it stands now, even before adding in a stimulus bump, TJX is going for 25x earnings. It has historically grown earnings per share at a double-digit rate. And it’s set to rake in a big chunk of the next round of stimulus. That makes TJX stock a bargain compared to other retail peers such as Costco (NASDAQ:COST) at nearly 40x earnings.
Emerson Electric (EMR)
Green energy is going to be a big theme in the Biden Administration. Unfortunately, it’s a bit late to get on board with many of the trendiest stocks in the sector. I’d be hard-pressed to buy a solar stock that’s already up 250% over the past 12 months, for example.
That said, let’s think about the people that make stuff for the green energy companies. In an industry boom, the suppliers make a fortune as well. Think selling picks and shovels instead of actually mining for gold. Who will be producing that modern day gold?
I like Emerson Electric. The industrial firm was founded more than 130 years ago in St. Louis, and has built up a wide array of nondescript yet essential goods for managing power and electricity services. The company has made a big push on renewable energy and looks set to cash in that bet in coming years.
Emerson has its sights on a wide range of electrical grid and power generation services, including hydro, solar, waste-to-energy, geothermal and microgrids. It also sells software to help with managing these assets, as it aims to be an all-in-one provider to customers. That includes such things as cybersecurity for power assets and machine learning-powered AI to minimize energy loss at wind farms.
If President Biden sends a huge chunk of green energy bucks out as part of an infrastructure bill, Emerson should capture a nice piece of it. And, unlike most green energy companies, EMR stock is a blue chip. It has paid an increasing dividend every year since the 1950s and currently yields 2.4%.
NextEra Energy (NEE)
Playing on a similar theme, we have NextEra Energy. NextEra is the country’s largest utility company in size, and it has had a scorching run. NEE stock has more than tripled over the past five years. That’s very unusual for stocks in the utility industry.
What makes NextEra stand out? Two things. It’s a growth-focused utility, which is a plus. Particularly since it is profitable growth; NextEra has some of the highest returns on investment in the energy industry. On top of that, NextEra is one of the most ambitious developers of solar and other renewable power projects in the country. It intends to build another 10 gigawatts of solar power this decade, for example.
This combination sets up a winning result. According to Morningstar analyst Andrew Bischof, NextEra offers investors: “[T]he best of both worlds: a secure dividend and industry-leading renewable energy growth potential.” With Biden taking office, the momentum behind solar power should continue to build. And since NextEra has been a leading operator in the space for many years, it is primed to take advantage if more federal funding comes into the space and incentivizes further new projects.
Lockheed Martin (LMT)
On the flip side of Emerson, we have defense companies. There’s an interesting tendency that maligned sectors tend to do better than folks understand. Solar stocks did alright during the Trump Administration, for example. Similarly, oil did alright from 2009 to 2013 under President Obama, despite the scores of anti-fossil fuel headlines. And there’s plenty more examples along that trend historically.
Thus, it’s worth asking if any of the sectors that are currently in the dumps thanks to the election results will recover. Defense seems like a logical one. Companies such as Lockheed Martin have been trading horribly since November. LMT stock is down around 15% in recent months, even as the stock market as a whole keeps making new all-time highs. Traders seem to be thinking that defense spending will plunge with Biden in charge.
However, there’s little sign that this will actually happen. Biden’s record as a Senator was not particularly anti-war. He cast a controversial vote in favor of the Iraq War, for example, which isolated him from the more anti-war wing of the Democratic Party. There are certain Democrats that would eagerly slash military spending, but President Biden probably isn’t one of them.
Besides, military projects tend to work on massive timelines; think decades. President Trump authorized a ton of new military spending, and it’d be hard to reverse all that within four years, even if Biden wished to. And besides, look at the world. Geopolitical tensions have been heated on multiple fronts. For better or worse, the military can make a strong case for more funding. In any case, as things stand now, LMT stock is selling for just 13x earnings and pays a 3% dividend. That’s a huge bargain in this frothy market.
Brown-Forman (BF.A) (BF.B)
Brown-Forman is a family-run liquor business, primarily known for its Jack Daniels whiskey. In recent years, it has branched into tequila and other spirits as well. Due to its ownership structure, there are two classes of stock, the A shares which have voting rights, and the B shares which do not. All else equal, it generally makes sense to own whichever one is cheaper, which is currently the A shares.
That said, what makes Brown-Forman stand out during a Biden presidency? For one, all the political angst is almost certainly good for alcohol consumption. Spirits sales are up 24% since the pandemic started.
And there’s a much more specific reason to buy Brown-Forman stock in particular. The company’s earnings were dinged in recent years due to European tariffs against Brown-Forman’s whiskey. This was a result of the outgoing president’s trade war. Additionally, Brown-Forman has been seeking more of a foothold in China. Understandably, however, the political tensions with China over the past few years have been a headwind.
More easygoing international relations could be a boon for Brown-Forman’s exports, leading to a significant pop in earnings. And if things end up going badly under President Biden, people will still want to drink whiskey regardless.
Rounding out the list, we have a Biden favorite: Credit card companies. Throughout much of Biden’s career, his largest donor was bank MBNA, which is now part of Bank of America (NYSE:BAC). But Visa is the name I want to focus on here.
Biden’s home state of Delaware has favorable bankruptcy laws, thus making it the center of the nation’s credit card industry. As a Senator, Mr. Biden backed a controversial bill that made it harder for consumers to discharge debt in bankruptcy, which was a big benefit for the banks. Biden’s moves recently, such as selecting Janet Yellen for Treasury Secretary, seem to indicate that he will continue treat the financial industry well.
In addition to that, Biden’s stimulus efforts should give Visa and rival card companies a boost as well. All those $1,400 checks will turn into significant merchant fees in due time. From a valuation perspective, while V stock certainly isn’t cheap, it’s a better play than it used to be. Thanks to a slowdown in growth from the pandemic, V’s stock has been merely flat over the past year even as the market has powered higher. That could make for a decent entry point here.
On the date of publication, Ian Bezek held long positions in BF.A, EMR, and FB stock.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.