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The Obama Portfolio

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Ethanol may be the fuel that no one likes: It takes about as much energy to make as it generates and hogs 30 percent of the corn crop to produce about 3 percent of the nation’s gasoline. But Obama swears by it, so let’s stop moralizing and start buying companies that benefit from his insistence that we go grain instead of carbon. Deere & Co., the dominant agricultural-equipment company, has also seen its stock trampled by a hedge-fund stampede, a run that took it from the 90s to the 30s. It profits from any renewable-agricultural-energy initiative, including any that expands beyond corn. Besides being the farmers’ tool of choice, Deere helps developers build windmills and produces earthmoving equipment, so it’s a three-in-one Obama play. Added advantage: Like CAT, Deere’s based in Illinois, smack in Obama’s breadbasket, and Iowa farmers, so key to Obama’s primary triumph, stand to get more Deere handouts per capita than just about any state.

Another good ethanol play is Archer Daniels Midland, which creates and transports both ethanol in this country and biodiesel abroad, the latter being the other new fuel most likely to prosper under Obama. Like the other agri plays, ADM’s been crushed; you can get it at the same price it was before the ethanol craze began. It’s way too cheap not to own even without Obama in the White House.

Conservation’s the easiest energy initiative to implement, and nothing saves heat or electricity the way insulation does. Owens Corning is the name synonymous with the stuff. The OC’s also the biggest supplier of composite fiberglass used to make windmill blades, the strongest and cheapest material used to produce that renewable-energy source.

You have to figure that Obama’s going to lick the banking crisis. I’m not a fan of Tim Geithner, the Treasury secretary-designate, in part because he was a key Wall Street regulator as head of the New York Fed, an oxymoron given the totally unchecked recklessness of Bear, Merrill, Lehman, Citigroup, and just about everyone else in his purview. But he’s got the respect of Wall Street and the ear of Obama. After several miserable attempts by the Bush team to revive the banking industry, Geithner’s recent Citigroup bailout seems to have created a template that creates instead of destroys value. That means the worst of the banking crisis may at last be behind us, as Citigroup was the lone bank that could still pull down the whole financial system. The true winners now will be banks that can take advantage of the chaos and become dominant lenders. The two that will emerge as the healthiest will be Wells Fargo and JPMorgan. Both are well off their highs, and both have been able to establish national footprints, by purchasing ne’er-do-wells Wachovia and Washington Mutual, respectively, on the cheap. Success in banking now depends on a deep deposit base; Wells’s and JPMorgan’s purchases of these behemoth banks under stress gives them the deposit heft to triumph over other big, brand-name banks like Goldman Sachs and Morgan Stanley as well as any local or regional bank that now lacks the scale to compete. I could see Obama reinstituting the suspended tarp (Troubled Asset Relief Program) plan meant to buy the bad assets of banks, cleaning up not just the balance sheet of Citigroup but letting Wells and JPM off-load the awful and reckless loans of Wachovia and Washington Mutual while keeping their fantastic branch networks. With government guarantees on loans and billions of dollars placed in their coffers by current Treasury secretary Hank Paulson, these two banks will emerge as the most powerful financial entities in the world.

No matter how fast Obama works to combat a recession, companies that have little or no sensitivity to the broader economy should also do well. I like Gilead because it dominates the treatment of HIV, and U.S. health-care guidelines will most likely change in favor of much earlier treatment than currently suggested, perhaps raising the number of patients by more than 100,000, which will give a huge boost to earnings. The combination of weak or negative economic growth and sharply lower oil prices, meanwhile, will help the bottom line of firms like Procter & Gamble and Colgate-Palmolive, which use huge amounts of petroleum-based plastic to package goods that people still regard as necessities. Kraft should also prosper, with its strong stable of products like Velveeta and Oscar Mayer, previously dormant brands suddenly on fire because of low price points. Finally, Wal-Mart and Family Dollar Stores have picked up share from all other retailers, as price has become the predominant driver of consumer choice. How bargain-mad have American consumers become? Wal-Mart is the only Dow component that’s actually up this year.

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. 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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