As pro-business as President Bush pretends to be, he’s really not such a hot choice for many American companies. John Kerry, meanwhile, is not exactly known for saying that what’s good for General Motors is good for the country, but it just might work out that way. In fact, if you try to vote your portfolio this November, rather than your politics, I think you’ll be shocked to see who truly benefits come November 3. Let me give you five stocks I expect to soar under a reelection of President Bush and five that should ramp up if Senator Kerry wins.
First, the challenger. You don’t hear anything positive about the stock market when it comes to John Kerry. He’s not talking about giving you juicier tax treatment for dividends or capital gains. But you know what? That didn’t matter as much as President Bush thought it would. That whole giant program designed to make rich people invest in business to take advantage of favorable tax treatment gave the markets a one-time boost, but no more than that, and it didn’t create many jobs. What the president and his advisers forgot is that investors don’t care about tax savings if they are going to lose money owning stocks. A lot of good tax breaks do when the earnings of the companies you bought don’t measure up. Kerry’s got a different plan. Oh, he hasn’t sold it that way. In fact, he hasn’t sold us anything at all about helping business. But if he could wake up for a moment and stop trying to explain that he didn’t find his Silver Star at the bottom of a cereal box, he could sell his health-care plan as a long-term fix to what’s ailing corporate America’s earnings. You see, right now, the biggest problem facing many of our largest companies is health-care costs, and only John Kerry’s plan would allow the companies to shift those costs from their own P&L to the P&L of the government.
Right now some companies are facing medical bills in the multiple billions of dollars, bills that employers will have to pay if the government doesn’t intervene. For some companies, notably General Motors, Verizon, and Lucent, the looming health-care tab is so large that they seem destined to become health-maintenance organ- izations with a sideline in the auto and telephone businesses. Under Kerry’s health-benefit plan, it’s reasonable to think that companies like GM, Verizon, and Lucent could shift the lion’s share of those costs to a willing federal government.
"If we get through the election without a major terrorist incident, we could see a 10 percent rally in the S&P no matter who wins."
That’s why anyone who believes Kerry can win should own a health-cost-impaired company. If you don’t like GM, choose Ford. With $67 billion and $32 billion in health-care liabilities, respectively, both companies stand to benefit if the government helps pick up the tab.
Verizon’s got a $24 billion health-care bill it needs help on, a legacy of all of those Bell workers it once employed. Verizon’s not a sure thing under Kerry, though, because in the wars between the incumbent phone companies and the upstarts, the Democrats have historically sided with the upstarts, allowing them to piggyback off all of those expensive buildings with Verizon’s name on them. Fortunately for Verizon, the upstarts, like MCI and Level Three, have been so slammed by the capital markets, it might not matter. Verizon’s got a 4 percent yield and owns half of a fantastic wireless business, but its stock is down substantially from its highs because of the medical drag.
Lucent could be the biggest winner of all the companies with health-care woes. Lucent’s post-retirement health-care obligations aren’t as big as the others’, but as a percentage of Lucent’s overall revenues, they are huge. Lucent’s been shrinking its operations for years, but not its health-benefit obligations. By the end of 2004, it will have shelled out more than half a billion in post-retirement health-care benefits in the past two years, and it’s on the hook for another $250 million in 2005 and in 2006. By 2007, the trust it has set up to pay these benefits will be completely depleted. Without a change in Washington, these payments, Lucent representatives tell me, will “severely impact” the company’s ability to be competitive. That means it will either have to issue hundreds of millions more shares to pay for these benefits, or it will have to wreck its balance sheet by issuing billions in debt to pay for them, as the benefits come right out of cash earnings. If the health-care payments can be off-loaded, Lucent’s stock could double rather quickly. If Bush wins, though, the stock could be stuck at $3 without much going for it except a possible takeover at some point in the far future.