President Joe Biden has been taking bold actions, like the massive stimulus bill. And of course, he has more plans in the works, like the infrastructure plan. Investors are trying to figure out which companies will benefit.
It’s important to recognize that President Biden’s policies will also have adverse impacts on some businesses. Perhaps one of the biggest impacts could be the support of unions. With growing concerns about inflation, unions may see a resurgence — and this could put pressure on the profits for Corporate America.
There are various studies that have looked at how labor unions can impact the bottom line. For example, there was one – from St. Francis Xavier University professor Hatem Ghouma, King Saud University professor Abdullah Aldahmesh and Hamdi Ben-Nasr – that analyzed data from 1984-2013.
The outcome? Well, the influence of labor unions can lead to a “stock price crash risk”!
So if President Biden’s actions lead to more union activity, which companies could be negatively impacted? Let’s take a look at seven:
- Target (NYSE:TGT)
- TJX Companies (NYSE:TJX)
- Macy’s (NYSE:M)
- Tesla (NASDAQ:TSLA)
- Darden Restaurants (NYSE:DRI)
- Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG)
- Amazon (NASDAQ:AMZN)
Stocks Watching Biden Administration’s Impact: Target (TGT)
Last year was particularly strong for Target as the novel corona virus spurred a big increase in consumer spending there. Comparable sales growth was 19.3% and there was a $9.3 billion improvement in marketshare.
In a show of appreciation to the hard work of its employees, Target did provide a $500 bonus for its hourly workers. The minimum wage was also set to $15 per hour.
But there could still be pressure from unions. For example, a Target warehouse center in New Jersey has indicated an intention to unionize. Let’s face it, such jobs can be so stressful. But of course, the warehouse part of the business has become a major source of profits for Target because of the importance of ecommerce.
It’s not clear how many employees are in these facilities – but the headcount is likely growing. As for the total base across the company, it’s about 368,000.
TJX Companies (TJX)
TJX Companies has been effective in navigating the impact of the novel coronavirus. During the fourth quarter, the open-only comp store sales were off only about 3%.
The company has also been able to maintain robust profitability. It certainly helps that the company is highly disciplined with its costs. It’s all a part of the low-price model.
But this could make it vulnerable to the pro-union focus of President Biden. Note that TJX is a fairly large organization with about 320,000 employees. And a union drive could really have a material impact on margins.
Even with the cost cutting and unloading of stores, Macy’s still has a large employee base. It’s around 75,000.
Since Macy’s has been around for decades, the company is unionized, but this represents a fairly small part of the workforce. But if it gets easier to expand on this — such as with the policies of President Biden — the impact could mean a squeeze on the bottom line.
After all, Macy’s still must deal with the secular trends to ecommerce, battling giants like Amazon. And while the company has been making investments in its digital offerings, they have still not been enough to reverse the pressures on revenues.
The auto industry has historically been heavily unionized. But Tesla has been able to buck that trend.
Hey, there is little doubt that the company’s cofounder and CEO Elon Musk is no fan of unions. Keep in mind that the National Labor Relations Board (NLRB) recently ruled that he violated the labor laws by firing a union activist in 2018. It was actually in regard to the following tweet: “Nothing stopping Tesla team at our car plant from voting union. Could do so tmrw if they wanted. But why pay union dues & give up stock options for nothing?”
One of the consequences of the NLRB action is that Tesla will have to amend its confidentiality agreements to allow its employees to freely talk with the media about their labor situations. The company will also have to provide notices about their labor rights.
Tesla has over 70,000 employees – and the headcount is growing at a rapid clip. So given that United Autoworkers has a lot of power and may be emboldened by President Biden, there could be more unionization efforts at the company. Still, Biden’s ambitious electric vehicle initiatives could provide tailwinds for TSLA stock at the same time.
Darden Restaurants (DRI)
The restaurant business is tough. There is wide-spread competition and, of course, the labor costs are substantial — as is the turnover rate. Thus, if there is more unionization, the impact could be significant.
One of the largest restaurant operators in the U.S. is Darden Restaurants. The company has over 175,000 employees and operates chains like Olive Garden, LongHorn Steakhouse, Yard House and Cheddar’s Scratch Kitchen.
Yet it is taking some proactive steps to head off the efforts of unions. For example, Darden Restaurants recently set aside $17 million in bonuses and increased the minimum hourly pay $10.
However, in light of Biden’s plans, this may not prove to be enough. Keep in mind that there is a growing movement in the restaurant industry to “Fight for $15” for the minimum wage and Darden Restaurants has definitely been a target of this.
There are currently more than 800 members of the Alphabet Workers Union, which is associated with the Communications Workers of America Local 1400.
Even though the union is fairly small, it may be a sign of more unionization to come. But, interestingly enough, the focus is not on wages. Alphabet is known for being competitive in regards to compensation. The reality is that it’s tough to attract and retain high level technical talent.
But there is still likely to be an effect. The reason is that employees at large tech companies are mindful of their responsibilities and impact on society. There are potential threats with AI (Artificial Intelligence) and other new technologies.
The issue for a company like Alphabet is that its business model is often at odds with such things as privacy. In other words, if unions become more prevalent, it could be tougher for the company to monetize its platforms.
Amazon CEO Jeff Bezos has supported President Biden’s infrastructure plan — even the proposed corporate tax increases. Yet he may not be as keen about Biden’s support for unions.
And this should come as no surprise. Keep in mind that the company has over one million employees.
Something else: employees at an Amazon warehouse in Bessemer, Alabama, recently voted against unionizing. Although this may bode well for AMZN shareholders in the short-term, the media attention that this vote garnered could engender other union efforts across the company and corporate America more broadly. So unionization may yet pose a headwind to Amazon, and this could present a growing challenge to the stock.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.