Where to put your money now that Obama has won


http://www.marketwatch.com/story/where-to-put-your-money-if-obama-wins-2012-11-06?siteid=bigcharts&dist=bigcharts

Nov. 6, 2012, 11:35 p.m. EST

Where to put your money now that Obama has won

Commentary: There are plenty of choices, some not so obvious

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By Jon Markman, MarketWatch

The stock market loves President Barack Obama. With all its cheating heart, and all its mercenary soul.

More than that, actually — it adores him. The love story of Wall Street and Obama is a bromance like no other, a man-crush for the ages.

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Despite his threats to soak the wealthy for more taxes, despite Fed Chairman’s attack on savers, despite even his threat to kill special treatment for dividends, institutional investors have thrown themselves at Obama’s feet as they have not done in the first term of any president in the past century.

You could look it up. The S&P 500 has gained 76% since his inauguration in January 2009, while the Nasdaq 100 is up 128%.

Compare that to the S&P 500’s 13% decline and the Nasdaq 100’s 45% wipeout in the first term of his predecessor, George W. Bush; or the mere 25% gain in the first term of conservative icon Ronald Reagan; or even the 60% gain in the halcyon early 1990s in the first term of Bill Clinton.

The staggering advance of the market is probably one of Obama’s greatest accomplishments, and yet, in a rich irony, political sensitivities prevent him from bragging about it.

Reuters

Republican presidential nominee Mitt Romney and his wife Ann get their ballots to vote during the U.S. presidential election in Belmont, Massachusetts November 6, 2012.

The beauty part is that this was not a coincidence, beginner’s luck or a historical fluke.

The administration and the Federal Reserve run by his appointed chairman, Ben Bernanke, have systematically stuffed big banks’ pockets with cash in an unending rescue effort, slashed interest rates to the lowest levels of the past 300 years, diverted senior citizens’ savings to revive the moribund residential construction industry and showered drug makers and insurers with fresh sources of revenue from his health care overhaul.

Little wonder then that Wall Street cannot bear the idea of parting ways with the Obama administration, and thus in the past two months has thrown a tantrum to protest the surprising advancement of challenger Mitt Romney in the polls.

Now that the president has won a second term, you can expect most of the sectors that have benefited from the present administration to keep on rolling. Here are some top prospects.

Health care

The Patient Protection and Affordable Care Act, the President’s health care initiative, set out new mandates, subsidies and credits to employers and individuals to increase Americans’ access to health care. Upon its passage in March 2010, investors began boosting the shares of drug makers, insurance providers and hospitals because they all suddenly had a lot more paying customers, courtesy of the government and taxpayers.

Shares of Pfizer PFE -1.65% , for example, had fallen 50% during the eight years of the Bush Administration, January 2001 to January 2009. In contrast, its shares are up 70% during the Obama Administration, almost in a straight line. Sixty-four percent of the gains in the maker of Viagra, Zoloft and Lipitor have come since ACA passed.

Insurance provider Unitedhealth Group UNH -4.18%  is up 73% since Obamacare passed. Smaller biotechs have gained a lot more, led by Alexion Pharmaceuticals ALXN -2.63% , up 252%.

Overall, SPDR Health Care XLV -1.74% , which includes all the health care stocks in the S&P 500, is up 31% since the President’s health-care law passed, vs. 27% for the broad market. It’s still a good bet going forward, as most of the benefits still lie ahead.

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Home construction and real estate

The Obama Administration and Federal Reserve targeted the home-building industry for special attention since it is among the few industries that cannot outsource jobs overseas. The industry also provides the best income to workers without college educations. It also has a ripple effect on the economy, as new homes require paint, lumber, furniture, lawn care and the like.

iShares U.S. Home Construction ITB -0.73%  offers the purest exposure to the industry. It’s up 133% during the Obama term so far, vs. 69% for the S&P 500, and is still very strong. The best individual stocks include Lennar LEN -0.37% , PulteGroup PHM -1.06% , Louisiana Pacific LPX +3.57%  , Eagle Materials EXP -1.01%  and M/I Homes MHO -1.53%  among the larger companies as well as peripheral players like lawn-care machinery maker Toro TTC -1.25% , swimming pool supplier SCP Pool POOL -2.76%  and carpet maker Mohawk MHK -2.12% .

Likewise the real estate industry has benefited enormously from policy over the past four years, as quantitative easing has involved directly buying securities that support residential and commercial construction. iShares Real Estate IYR -0.31%  includes all the major players, including regional shopping malls specialist Simon Properties SPG +0.15% , which is up a cool 315% since Obama entered the Oval Office and still looks fine. Two new stocks with promise in the red hot mortgage servicing business are Nationstar Financial NSM -5.57%  and Home Loan Services HLSS +0.32% .

Mobile communications

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Obama: ‘Never been more hopeful’

After winning a second term, President Obama ends his victory speech with a vision for the country.

The Obama Administration has not promoted a coherent technology policy. But outside of a couple of attempts to rein in Google, it has not willfully attacked the tech industry either. The group has risen 114% during the four years, led by the 675% blitzkrieg of Apple AAPL -3.81%  and 390% advance of Amazon.com AMZN -2.36% .

One subgroup in the industry that appears set for further improvement are the cellular tower owners. There are relatively few of them, and they get paid in part on a metered basis, so they are neutral parties that are prime beneficiaries of the explosion in mobile communications. Top names are SBA Communications SBAC +1.67% , American Tower AMT +2.10%  and Crown Castle International CCI +0.86% .

For a contrarian pick over the next four years, consider a bet on a surprise resurgence at Dell DELL -3.73% or Hewlett-Packard HPQ -4.33% , which are clumsily trying to shed their personal computer legacies in favor of services, and may well find opportunities ahead.

And for the small-caps, two companies with a shot at finding success in the patchwork new world that employers and hospitals will face in health care and the digitization of medical records, consider WageWorks WAGE -1.33%  and Greenway Medical Technologies GWAY -1.33% .

Financial services

Over the past four years, consumers have largely reined in their spending and streamlined their use of plastic, and that has actually benefited some of the more spry companies in the credit and transaction businesses. Delinquencies have fallen dramatically, and the use of credit cards is actually up.

We can expect a second Obama administration would attempt to reinforce these trends, and that would improve the opportunities for the industry’s leaders.

Three companies to watch on this score are Capital One Financial COF -2.69% , Discover Financial Services DFS -1.12%  and Mastercard MA -1.56% . The latter is the easiest call as it will grow at a multiple of the growth of credit and debit transactions, and has largely escaped all attempts to rein in its profitability or ubiquity.

Energy

Energy producers have fared surprisingly well in the Obama years, led in part by the companies in the complex that were the most capable of staying one step ahead of the regulators and in part by the ones paying the largest dividends to yield-starved pensioners. Also companies that sell chemicals into the energy market have also fared well, as margins have improved and EPA rules have proven surprisingly restrained.

Some of the best in the energy patch are Cabot Oil & Gas COG -1.80% , and high-yielding master-limited-partnerships Plains All-American PAA +0.19% , Enterprise Products Partners EPD -1.12% , Kinder Morgan Energy KMP -1.36% , Linn Energy LINE -1.23%  and refiner Calumet Specialty Products CLMT -1.97% .

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On the chemicals side of refining, look for continued success from NewMarket NEU -1.32% , WR Grace GRA -2.04%  and LyondellBasell Industries LYB -2.44% . The high-yield stocks issue new shares in secondaries fairly frequently, so wait until one of those 3% to 5% short-term setbacks to buy.

Overall, economic and political cycles suggest the first year of a second Obama Administration could be rough as investors adjust further to slowing global growth and peak earnings.

While the full second term is likely to turn out well for stocks, if you are nimble, you may wish to wait for at least one 15%-plus correction in mid-2013 to take on a full plate of risk.

A good analogy might be the second term for President Clinton. The entire four-year period yielded a very respectable 77% return for the S&P 500 and whopping 252% return for the tech-bubble Nasdaq 100. But the first two years were both marred by separate 10%-plus slides in the spring and winter.

Bottom line: Expect the market to continue its bromance with Obama in a second term, but buy into it opportunistically when panic is in the air.

Jon D. Markman is an investment adviser, money-management consultant and best-selling author of several books, as well as the Strategic Advantage and Gemini 252 newsletters. Follow him on Twitter: @jdmarkman.

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