Table of Contents

Table of Contents

1) The Economy ............................................................................................... pg 2 2) Healthcare ................................................................................................... pg 4 3) Energy ......................................................................................................... pg 5 4) The Fiscal Cliff and Defense ........................................................................ pg 6 5) Wall Street ................................................................................................... pg 7 Other Resources .............................................................................................. pg 9

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5 Stocks to Own

... If Obama Wins ... If Romney Wins

by Kevin Cook

The 2012 presidential election is shaping up to be an exciting battle between two candidates with strong national followings. The incumbent and the challenger both have compelling platforms, and future directions for the country and the economy hinge on who we choose as citizens and voters.

But as investors, we have to be prepared for either outcome, attached to neither possible victor and ready to simply follow the net money flow. So, it's a good time to look at the investing landscape and how it might change before and after our next leader takes the oath in January.

To begin gaming the election and trying to estimate likely investment beneficiaries of each candidate, we'll first look at five big election issues and the sectors they impact. Then we can pick some stocks that could win for a second-term 44, and some that could win for a new 45.

1) The Economy

Job creation and taxes. These are the two biggies that most "presidential" economic debates revolve around. Whether any leader can actually get anything done in Washington to spur job growth might be the biggest debate. Romney's classic Republican bid to cut taxes will surely meet resistance in a Congress with its back against the wall on deficits and spending cuts. And Obama's infrastructure and agriculture bills face the same wall.

But assuming either one could be somewhat successful, here are a few ideas to consider:

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Federal Reserve economic projections from June that drive monetary policy. Update due at the September FOMC meeting.

Figure 1. Central tendencies and ranges of economic projections, 2012?14 and over the longer run

Change in real GDP Central tendency of projections Range of projections

Actual

2007

2008

2009

2010

Unemployment rate

2011

2012

2013

2014

Percent

5 4 3 2 1 + 0 1 2 3

Longer run

Percent

10

9

8

7

6

5

2007

2008

2009

2010

2011

2012

2013

2014

Longer run

PCE inflation

Percent 5

4

3

2

1 + 0 -

2007

2008

2009

2010

2011

2012

2013

2014

Longer run

Note: Definitions of variables are in the notes to the projections table. The data for the actual values of the variables are annual.

Obama victory: The President's 2013 budget includes a historic six-year $476 billion plan for transportation infrastructure projects, including high-speed rail initiatives. Large engineering and construction companies like Jacobs Engineering (JEC) may thrive.

Romney victory: Tax cuts mean more capital investment by corporations and more spending by consumers. Buy IBM for enterprise IT, or an early-growth retailer like Michael Kors (KORS).

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2) Healthcare

As we've seen, "Obamacare" is good for health care providers, like hospitals and some HMOs, because it encourages patient care for more than 30 million uninsured Americans. The recent Supreme Court ruling upholding the Patient Protection and Affordable Care Act will only ensure that more patients are added to Medicaid, which protects the poor. And the waves of baby boomers retiring over the next few years will boost demand for Medicare.

The insurers have been under pressure as they see their costs rising. But, the recent flurry of M&A in the group was a scramble to get more exposure to Medicaid and Medicare payments, with Aetna (AET) buying Coventry Health Care (CVH) and WellPoint acquiring Amerigroup (AGP).

Meanwhile, Romney may ease pressure on pharmaceutical companies and device makers, like Stryker (SYK), two businesses that are due to suffer from Obamacare. The President's plan imposes a 2.3% excise tax on the sale of medical devices starting next year and charges drug makers $85 billion in fees over the next 10.

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