All signs are pointing to the Republicans winning the majority of the House in the 2022 midterm elections. Still, one or more “October surprises” could materialize that could conceivably prevent the GOP from gaining a majority. So, just in case one or more of those scenarios (such as peace in Ukraine and a sudden deceleration of inflation) do materialize, I’ve prepared this list of seven stocks to sell before the 2022 midterm elections.
I’m old enough to remember the 1980s and 1990s. In those days, it was clear that Democrats were the pro-union party and Republicans were the pro-business party. Now those lines have gotten quite blurred, mostly because many Democrats now back some sectors, as much or more than Republicans.
Still, there are a few sectors that Democrats are still not too keen on. Among the most prominent names on that list are oil and gas, coal, banks, and cryptos.
With that in mind,, here are the seven stocks to sell before the 2022 midterm elections if it suddenly looks as though Democrats will retain control in Washington.
Exxon Mobil (XOM)
There are two business sectors that divide Democrats and Republicans. That includes the oil and gas sector. The other one, in case you’re curious, is renewable energy. There is still no love lost among the Democrats for domestic oil and gas companies. Consequently, if the Democrats do win control of the House, the party could take actions that would meaningfully hurt U.S. oil and gas companies, including Exxon Mobil (NYSE:XOM).
For example, they could conceivably impose new taxes on the sector, use the Clean Air Act and other laws to further restrict gasoline-powered vehicles, and declare certain parts of the coasts of the continental U.S. off-limits for drilling.
If the GOP takes control of the House, it would most likely help XOM and its peers. That’s because Republicans could potentially strike a deal to limit further releases from the Strategic Petroleum Reserve or find a way to get the Biden administration to allow the Keystone Pipeline to be built.
The XOM stock, all else being equal, could underperform for some time if it looks as though the Democrats will retain control of both houses of Congress.
Occidental Petroleum (OXY)
Occidental Petroleum’s (NYSE:OXY) drilling programs are largely concentrated largely in America. Indeed, outside of the U.S., OXY appears to only have major drilling operations in three other, relatively small countries: Oman, the UAE, and Columbia. Therefore, any successful efforts by Democrats to restrict drilling for oil in the U.S. and raise taxes on oil producers would likely have much more of an impact on Occidental than on XOM and CVX.
Congressional Democrats have even sought to force the Fed to get U.S. banks to stop lending to oil companies. Given Occidental’s large concentration in the U.S., such an initiative would probably have a major, negative impact on Occidental and OXY stock. Meanwhile, on Sept. 12, Citi downgraded its rating on OXY stock to “neutral” from “buy,” citing valuation. OXY stock’s current price of around $63 is less than 10% below the firm’s price target of $67. Heading into the 2022 midterm elections, the OXY stock could potentially take a hit.
Alliance Resource Partners (ARLP)
Coal’s share of the U.S. electricity market has been dropping for years, and that trend looks poised to continue as worries about climate change mount, prompting states and the federal government to embrace an “all-of-the-above-except-coal” approach when it comes to generating electricity. Moreover, very low natural gas prices for much of the last decade has greatly reduced the utilization of coal and coal prices.
But this year, everything has changed for the coal sector, including Alliance Resource Partners (NASDAQ:ARLP). Specifically, due to the events in Europe, natural gas prices in much of the world, including the U.S., have jumped, and the demand for coal has climbed. As a result, ARLP stock has soared 90% this year.
However, continued, unified Democratic control of Washington could be quite negative for Alliance Resource Partners and its peers.
At least since Barack Obama became the leading Democratic contender for president in 2008, Democrats have been hostile to coal. Indeed, even when the party needed the support of a coal backer, Senator Joe Manchin, to pass its climate and health bill last summer, the Democrats placed provisions within the legislation that will hurt the coal sector. Multiple pro-coal organizations warns that the legislation, which ultimately became law, would “severely threaten American coal.”
So if Democrats are in a situation in 2023 in which they no longer depend on Manchin to pass legislation, chances are high that they would take meaningful, additional steps against the U.S. coal sector. Such a development, of course, would be quite negative for ARLP and its peers.
I’ve also previously warned that the US SEC is conducting two, separate probes of the company. Additionally, the US SEC may decide to classify Ethereum (CCC:ETH-USD) as a security. Motley Fool columnist Dominic Basulto also warned that such a development “could have disastrous consequences for the future price of Ethereum.”
And many other cryptos could suffer similar fates at the hands of the US SEC. Indeed, Basulto noted that “After all, if Ethereum is a security, then so is almost every other crypto, with the possible exception of Bitcoin (CCC:BTC-USD).”That type of development would have, of course, hugely negative ramifications for Coinbase, the leading crypto brokerage.
Multiple Congressional Democrats are also turning against cryptos. For example, a leading liberal voice on Capitol Hill, Senator Elizabeth Warren, has been quite critical of the sector. Heading into the 2022 midterm elections, the COIN stock could potentially take a hit.
CME Group (CME)
If inflation remains a problem and Democrats retain complete control of Washington, they could look to crack down on speculation on commodities. That would be a significant, negative catalyst for CME Group (NASDAQ:CME), which operates exchanges that facilitate the purchases of many commodities, including multiple agricultural commodities.
Inflation, of course, has been a major problem for the U.S. fiscally, while weighing on consumers tremendously this year. Inflation has also been a major cause of the Democrats’ political woes.
Some on the Left and a number of Congressional Democrats have said that inflation is being at least partially fueled by Wall Street speculators. For example, liberal Democratic Congressman Ro Khanna, along with a number of his colleagues, in June urged the Biden administration to eliminate a ” loophole, which lets Wall Street speculators gamble on commodity prices, driving inflation.”
The loophole reportedly allows ” big financial firms overwhelm healthy price-setting with massive volumes of commodity-based swaps — essentially bets on commodity prices.”
If inflation remains stubbornly high and Democrats retain control of Congress, they could look to rein in speculation by Wall Street traders on commodities, significantly harming CME Group and causing CME stock to decline meaningfully.
Morgan Stanley (MS)
Of course, restricting Wall Street’s ability to speculate on commodities could lower the profits of Wall Street banks. And investment banks, which get a great deal of their revenue from trading, as opposed to lending, are prime candidates to be hurt by curbs on commodities trading.
Morgan Stanley (NYSE:MS) bills itself as “a market leader in the Commodities sector, providing risk management, investor products, financing solutions and liquidity across commodities markets including oil, metals, power and natural gas.”
As a result, MS could be significantly hurt if the Democrats retain control of Congress and decide to rein in the Street’s speculation on commodities.
Also worth noting is that the Democrats’ climate and health bill included a 1% tax on companies’ share buyback programs.
If the party retains control of Congress, it could decide to levy other, additional taxes on investments, including a financial transaction tax, which has been levied by many European nations, taxes on mergers and acquisitions, and higher capital gains taxes. Such initiatives are likely to cause Morgan Stanley’s clients to reduce their investments, lowering the bank’s profits and weighing on MS stock.
The Obama Administration was quite hostile to payday lenders such as EZCORP (NASDAQ:EZPW). In 2016, the Administration proposed a rule that would have required the company, and its peers to determine if borrowers could repay he companies’ loans which tend to carry high interest rates. The rule would have also prevented the companies from making more than ” two attempts to withdraw money from borrowers’ accounts.” In 2021, Congressional Democrats successfully overturned a rule instituted by the Trump Administration which reportedly would have enabled payday lenders to avoid abiding by states’ limits on interest rates.
Given Democrats’ past hostility to the payday loan sector, there’s a good chance that, if they somehow expand their Congressional majorities, they would look to rein in Ezcorp and its peers.
Many economists predict that the U.S. will enter a recession within the next year. Since demand for payday loans tends to increase when the economy is doing poorly, a recession could be positive for Ezcorp and EZPW stock. Still, if Democrats look poised to expand their Congressional majorities, I recommend selling the shares of Ezcorp and those of its peers.
On the date of publication, Larry Ramer was short COIN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.