By Mia Lamar, Anna Prior and Jon Kamp
Investors keen to do some stock picking on Election Day have a
massive landscape to consider as voter decisions at the ballot box
have the potential to shake up major industries from healthcare to
financials and beyond, while ballot measures in individual states
put other stocks in play.
Healthcare
At the top of that list is President Barack Obama's signature
2010 healthcare overhaul, which Mitt Romney has pledged to repeal
if he is made president.
While full repeal may prove challenging depending on how
Tuesday's election shakes out in Congress, the law--major parts of
which don't go into effect until 2014--could still face pressure if
Mr. Obama loses his job.
The stakes appear highest for health insurers and hospitals. The
law promises more customers for big health insurers like
UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP) by extending
coverage to millions of Americans, but also threatens to squeeze
profit margins with new requirements like coverage for individuals
with pre-existing conditions.
While investors in big managed-care firms may therefore hope for
full repeal or major changes, hospitals such as HCA Holdings Inc.
(HCA) and Tenet Healthcare Corp. (THC) stand to benefit if the law
stays in place. Expanding coverage through commercial insurance and
Medicaid could mean a smaller burden from patients who can't pay
their bills.
Financials
Financial stocks will also be in focus this week, mostly due to
expectations that a Romney administration would attempt to overturn
the Dodd-Frank financial-reform law passed in 2010. The stocks
could see a big boost this week if Mr. Romney clinches his bid for
the White House, though any rally would have more to do with
sentiment than reality.
Investment bank Keefe Bruyette and Woods believes investors are
underestimating the difficulty Mr. Romney would face in overturning
Dodd-Frank. He is almost certain, however, to make piecemeal
changes like replacing the head of the Consumer Financial
Protection Bureau, a federal agency created by Dodd-Frank, with an
individual more sympathetic to his views.
One stock in particular that could rally on a Romney win is SLM
Corp. (SLM), or Sallie Mae, the nation's largest student lending
company. The Romney campaign has said it would reintroduce private
lenders into the federal loan system, reversing a change enacted
under Mr. Obama. SLM and other lenders have also come under new
scrutiny from the CFPB, which recommended this summer that Congress
adopt new rules like allowing student-loan debt to be discharged in
bankruptcy.
Defense
Defense is another potential benefactor of a Romney win.
"The Romney campaign has said several times they want to see
spending at 4% of gross domestic product and with Obama that trend
is below 3%," said Stifel Nicolaus analyst William Loomis, adding
investors will be focused on how the winner addresses the mandatory
federal spending cuts set for Jan. 1.
Analysts at Bernstein Research agree that a Republican win would
be "slightly more positive" for the sector, saying in a note to
clients that Army programs and shipbuilding are two areas of
defense that would likely benefit from a Romney win given how
outspoken he has been on both issues.
Army equipment and service providers to watch include Exelis
Inc. (XLS), L-3 Communications Holding Inc. (LLL), Alliant
Techsystems Inc. (ATK) and General Dynamics Corp. (GD). General
Dynamics could also score on the shipbuilding front, along with
Huntington Ingalls Industries Inc. (HII).
Other stocks in focus
--A California ballot initiative, known as Proposition 37, will
ask voters in the state to decide whether to require the labeling
of foods that are genetically modified. An approval has the
potential to hurt not only shares of bioengineering giants like
Monsanto Co. (MON) and DuPont Co. (DD) but also major food
companies like Kellogg Co. (K), General Mills Inc. (GIS) and
PepsiCo Inc. (PEP). Roughly 70% to 80% of U.S packaged foods
contain genetically modified ingredients, according to Bernstein
Research. One potential beneficiary, however, could be
Toronto-based natural-foods company SunOpta Inc. (STKL, SOY.T),
according to Canaccord Genuity.
--Voters in Maryland are deciding whether to allow for a new
casino in Prince George's County with Question 7. MGM Resorts
International (MGM) is hoping to win the bid for the property if
the measure is approved, which could hurt Penn National Gaming
Inc.'s (PENN) nearby Charles Town, W. Va., casino, said Brian
McGill, a gaming-industry analyst at Janney Montgomery Scott. Penn
National shares have already come down 7% over the last month on
expected passage, but a defeat could send shares higher.
--If the rally for coal stocks after Mr. Romney's "I like coal"
comments in the first presidential debate are any indication, look
for shares to get a bump post-election if Mr. Romney wins or see a
selloff if Mr. Obama is victorious. Stocks to watch include
companies with higher exposure to thermal coal like Arch Coal Inc.
(ACI), Consol Energy Inc. (CNX), and Cloud Peak Energy Inc. (CLD),
rather than the companies with higher exposure to steel-making
coal, which is more dependent on the health of China's economy.
--Shares of gun makers could see action following the election,
with an Obama win potentially spurring gun sales, similar to the
bounce after the 2008 election, on fears of future regulation. A
Romney win, on the other hand, could lead to softness for gun
stocks as buyers potentially hold off on purchases, said Cowen
Group analyst Cai von Rumohr. Stocks to watch include Smith &
Wesson Holding Corp. (SWHC) and Sturm Ruger & Co. (RGR).
--Mr. Obama earlier this year denied an application by Canadian
pipeline company TransCanada Corp. (TRP, TRP.T) to expand its
Keystone pipeline--a key conduit for Canadian oil into U.S.
markets--citing environmental concerns over the expansion's
routing. Mr. Rommey has criticized that move, citing the boost to
employment the project could create as well as its potential to
bolster energy security.
Write to Mia Lamar at mia.lamar@dowjones.com, Anna Prior at
anna.prior@dowjones.com and Jon Kamp at jon.kamp@dowjones.com.
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