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The Presidential Portfolio

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He may not know it, but Obama, not McCain, could be best for the banks, brokers, and home-builders, the three most downtrodden groups in the stock market. That’s because Obama would get behind massive federal relief for stressed-out homeowners struggling over higher mortgage rates and lower home values. To date, McCain and the rest of the Republicans have favored a laissez-faire approach to the issue. That sort of hands-off policy is traditionally good for banks and home-builders, but in this case it has led to bloated inventories from foreclosures and unsold new and old homes. Obama would side with the congressional Democrats, who would offer hundreds of billions of dollars in mortgage-loan guarantees, something that would actually end this nightmare. That would make everything from Morgan Stanley and Merrill Lynch to Bank of America and Wells Fargo gigantic buys (maybe that’s why Obama’s been getting the lion’s share of donations from Wall Street). I’d also snap up some home-builders, like Toll Brothers and Ryland Group. In fact, the only financial to avoid with a Democratic win would be Capital One, the big credit-card issuer. With the warnings and new regulations Obama wants on credit cards, Capital One would become the Philip Morris (now Altria) of the financials.

The knee-jerk Democrat-means-sell/Republican-means-buy conclusion won’t be any more right this election season than it was the last two times.

If you want to know where the easiest money will be made in an election, it will be defense. Presidents have a great ability to direct spending toward certain branches of defense, and we’ve got McCain’s Navy coming our way if he wins. Both General Dynamics and Lockheed Martin have the most to gain. General Dynamics is the better company, with the best Iraqi book of business (nothing like a hundred years of potential Iraqi arms dealing), but Lockheed Martin’s got the most lucrative naval contracts. If Obama gets in, on the other hand, certain defense companies will be laid to waste. Because a fast pullout would result in immediate order cancellations, for instance, Alliant Techsystems, the nation’s biggest bullet-maker, might be the single best short idea come an Election Day romp by the Democrats.

No election handicap would be complete without a long-shot speculative play. Presidents can rarely force big issues through Congress without a fight, but they can often sneak through smaller ones. Obama has endlessly emphasized the “next generation” of broadband, which would allow far greater use of the Internet for everyone. One company, Level 3 Communications, has the most spare broadband capacity by far. If Obama wins, it’s hard to imagine why anyone would stand in the way of his broadband initiative—there aren’t a lot of natural enemies to a faster, better Internet. That could spell a doubling in price for this company, which just reported its first good quarter in a half-dozen years.

In either case, the best thing the market can hope for is a clear victor well before the election. Nothing’s worse for Wall Street than having the White House hanging in the balance, because it detracts from what we do best, bidding up or slamming down stocks based on the underlying fundamentals of the companies themselves. Get Washington off the front pages, and you can bet we’ll have a better stock market than we have currently. That means if you’ve got conviction on who will win in November, you should place your bets now, before the big gains and losses have been taken.

James J. Cramer is co-founder of TheStreet.com. He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions he takes may change at any time. At the time of this writing, he owned XTO Energy and Altria for his charitable trust. E-mail: jjcletters@thestreet.com. To discuss or read previous columns, go to James J. Cramer’s page at nymag.com/cramer. Get all of James J. Cramer’s stock picks via e-mail, before he makes the trades, by subscribing to Action Alert Plus. A two-week trial subscription is available at thestreet.com/aaplus.


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