Campaign Finance

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.

Here’s a counterintuitive fifth pick to round out a pro-Kerry portfolio: Halliburton. This is a company that, no doubt, has plenty of problems with the Pentagon when it comes to paying bills, but the big risk to owners of Halliburton is the headline risk. Put simply, the papers just love to write about HAL because it embarrasses the heck out of its former CEO, Dick Cheney. Don’t think for a minute that this company would get as many negative articles written about it if Edwards were veep. Consider that the SEC investigation into HAL’s accounting of construction projects simply went away without any restatement of earnings and a small $7.5 million fine, yet it’s been a staple of negative headlines for the entire Bush presidency. I doubt any of the current stories about Pentagon billing abuses amount to even a penny a share in real problems for the company. But owning the stock through this period has been a nightmare knowing that HAL will always be on page one for any infractions, major or minor. That just goes away if Cheney’s gone; who cares about Pentagon bill disputes then?

A Bush reelection presents fewer new opportunities because his policies are known to favor certain companies, but he has lots of unfinished business on his agenda that could boost the fortunes of some industries. (At the same time, a Bush portfolio could suffer hard under Kerry because many of these companies have been aided by Bush’s first-term policies. They could set up, therefore, as ideal shorts if Kerry wins.)

First is Nabors, the largest land driller in the United States. If you believe that Bush favors drilling anywhere and everywhere for oil, Nabors is your best way to cash in. Specifically, you want to buy Nabors ahead of the passage of any energy bill that makes for easier drilling in currently protected areas. Nabors is also headquartered in Barbados to take advantage of a corporate tax loophole that Kerry intends to abolish if elected. Two ways to win—or lose!

Second, I’d buy Allegheny Energy, the huge midwestern utility known for producing more acid rain and more gases that promote global warming than any other utility. If you think, like Bush does, that global warming’s a joke and that acid rain doesn’t matter, this potential public enemy No. 1 under Kerry should get off without having to spend much more than it already has on expensive antipollution scrubbers.

Defense spending will keep going up under Bush, and the company that stands to get the most increase is L-3, the modern-day defense outfit put together by Frank Lanza, an old pro who correctly envisioned a Rumsfeldian view that unmanned weapons are the way to go. L-3 also produces among the best bomb-detection equipment for the Homeland Security department. While the stock’s had quite a run of late, it trades down every time Kerry seems to get a pickup in the polls. L-3 should head up 10 percent immediately upon a Bush victory, but could nosedive a similar amount with a Kerry win.

When it comes to health-care cost controls, Bush, unlike Kerry, wants the private sector to do the heaviest lifting. That’s a huge boon for UnitedHealth Group, which pretty much wrote the health-care legislation for the Republicans that passed last year. I’ve owned UNH, the largest cost container in the health-care system, for years, recognizing that it’s the best hope for employers to curb health expenditures. Any Bush plan to extend medical benefits for the uninsured will rely on UNH more than any other company to do the job.

 Lately, I’ve been buying an unlikely and counterintuitive beneficiary of a Bush victory: Toyota Motor. Toyota is much more competitive than GM and Ford because it has no legacy health-care benefits, so it can afford to put all that money toward quality control and R&D. That advantage goes away if the U.S. absorbs the massive health-benefit problems of GM and Ford. But if Bush wins, I doubt those companies can ever catch up to Toyota, which will soon be the largest automaker in the United States.

Finally, I am sure that most Americans believe that a Kerry election would, per se, knock down all the securities markets, taking with it even the stocks I believe would get a boost from his victory. I can tell you, as a longtime Wall Street pro, that’s simply untrue. First, the stock market’s been knocked down so low on earnings that we could get a boost no matter who wins. Second, Kerry’s election, without any changes in Congress, would produce a situation that has produced bountiful stock gains in the past: gridlock (or as we on Wall Street call it, nirvana). That’s why, even though I have been bearish on all but oil for most of this year, I would bet that if we can get through the election without a major terrorist incident, we could see a 10 percent rally in the S&P no matter who wins come November. In that case, the predicted move in the above stocks could be icing on a bullish and delicious fall cake.

Campaign Finance