Talk about the upcoming midterm election is increasing, here in Washington, D.C., and on Wall Street. The Democrats are about to get a serious whipping and traders are beyond gleeful at the prospect of a major Republican victory.
Other than the reality that the vast majority on Wall Street are Republicans, I cannot understand why they think gridlock will be so good for the market. Selective companies and segments will benefit, but the whole market? The reality is that the politicians will squabble and the economy will continue to sink.
Here are four segments that will suffer after the elections and a few companies traders should consider shorting with put options:
Science R&D
One things both sides of the aisle can agree on is budget cutting by hitting some easy targets, the first being a hold on the planned increase in R&D spending at NIH and its affiliated contractors. We can expect budgets to be frozen or reduced, which will hit manufacturers and marketers of biological equipment like Illumina, Inc. (NASDAQ: ILMN).
For-Profit Colleges
Big action will take place at the committee level on the Hill, and perhaps the biggest beneficiaries will be “for-profit” colleges. Many of them are currently ripping off millions of dollars for unqualified students at the government’s expense. New Department of Education rules might stay in place to help curtail this waste, but future investigations and actions will be stalled by Republican committee chairmen.
The stock that will be most affected is Apollo Group, Inc. (NASDAQ: APOL), the big dog in this segment. Other potential stocks to short are the weaker names hit hardest by the Department of Education initiatives, such Corinthian Colleges, Inc. (NASDAQ: COCO) and Career Education Corp. (NASDAQ: CECO).
Alternative Energy
Republicans will work at slowing down or halting alternative energy programs, and this will have a negative impact on solar, wind and other related stocks. There will be a number of shorting candidates to choose from as the election nears.
Money Movers
Republicans will also push a meaningless crackdown on illegal immigration, and this could hurt companies that transfer funds overseas for foreign workers such as The Western Union Company (NYSE: WU). WU looks like a good short prospect right now, but during the past three months, it has traded in lockstep with the S&P 500, so we’ll have to be patient for a little longer.
Be assured that as the political landscape becomes clearer, and the economy begins to sink, there will be some great short plays we’ll be able to tap post election.
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