Parsing The Best Stocks To Buy After A Chaotic, Biden Vs. Trump Race| Investor’s Business Daily

As the dust gradually settles on this year’s election results, analysts and investors are struggling for a clearer view of what’s in store for the economy — whether a President Joe Biden has to work with a divided Congress or there’s some unexpected plot twist.


A strong market rally took hold over the past week as 2020 election results rolled in. Stocks as varied as Facebook (FB) and UnitedHealth Group (UNH) soared, even as investors speculated on the final outcome.

Most stocks that dived, including Caterpillar (CAT), United Rentals (URI) and First Solar (FSLR), did so only briefly before retaking lost ground. The prospect of a GOP-led Senate buoyed many industries, on the assumption that gridlocked lawmakers would pose a lesser threat.

Analysts remained confident that another round of coronavirus-related aid is coming, though it may have arrived with significantly more heft under a Biden presidency and a Democratic Senate. Analysts expect a significant infrastructure push under any election outcome. As with coronavirus stimulus, the benefits from such spending would cascade across multiple industries.

A Win-Win For The Stock Market?

Beyond infrastructure, early indications are that some of the best stocks to buy under Biden could be names in health care and renewable energy. Emerging markets would benefit from a lighter approach toward global trade. Meanwhile, banks and oil could suffer, although the rising probability of a GOP-led Senate buffered the downside.

“The environment for the stock market, regardless of who wins, will be in pretty good shape,” Michael Arone, chief investment strategist at State Street Global Advisors, said in an interview before the election. “We still have very low interest rates. We’re likely to get more fiscal policy, with very accommodative monetary policy.”

Market Fluctuates On Incomplete Election Results

As of early Friday, Biden had edged ahead of Trump in the battleground states of Georgia and Pennsylvania, but had lost some ground in Arizona. The Secret Service had expanded Biden’s protection services, treating him as a president-elect. The FAA had imposed a restricted airspace order, referred to as a “POTUS bubble,” over Wilmington, Del.

Trump had called for increased oversight as the counts, mostly of the unusually high number of mail-in ballots, continued. Trump campaign lawyers sought to block counts in several locations.

Democrats were expected to hold control of the House. In the Senate, the GOP appeared set to hold at least 50 seats. Some Senate races remained undecided, and at least one and likely two Georgia Senate races will go to runoffs on Jan. 5.

In the presidential race, legal challenges seemed likely in at least some battleground states. As of Friday morning, evidence of civil unrest — a major concern among observers on both sides — remained mild.

The Blue Wave Crashes

Even as the stock market rallied through the election week, investors braced for convulsions related to election results. After Election Day, they got them. Big tech stocks like Apple (AAPL), Amazon (AMZN) and Facebook took off. Election results after Tuesday cast increasing doubt on a possible Democratic sweep of the White House and Senate, easing some concerns over harsh antitrust action against the big tech and social media plays.

Biotech and pharmaceutical stocks rallied as well on Wednesday. Expectations for a GOP-led Senate eased some fears of a tough, quick turn toward drug-pricing reform. Defense stocks on Wednesday also got a bump, as the fading of a Blue Wave of Democrat control made less likely any immediate sharp cutbacks in defense spending levels.

However, solar stocks like First Solar and SunPower (SPWR) fell on Wednesday, as Biden’s support for renewable energy was likely to face challenges from a GOP-led Senate. Like many battered industries they rebounded a day later. Heavy equipment and materials names likely to ride a possible infrastructure wave, like Caterpillar and Martin Marietta Materials (MLM), did the same.

Modest Impact Expected From Election Results

As of Friday, armies of state election volunteers continued sorting through election results for the White House and Senate races. Meanwhile, the coronavirus pandemic still raged.

During the week, new daily cases in the U.S. soared for the first time to more than 120,000, with daily death counts in an uptrend. That raises the threat of fresh re-closings. Several coronavirus vaccine candidates are in final-stage trials with FDA emergency approvals possible by year-end or early 2021. But getting most Americans vaccinated will take many months, at best.

Questions remain about big potential shifts in federal regulation. However, the Supreme Court’s new 6-3 conservative majority provides added backing to the status quo that’s existed under Trump and a GOP-led Senate.

As more forecasts began to lean toward a Biden victory, Euromonitor’s baseline outlook estimated gross domestic product growth of roughly 3.5% next year under a Biden presidency. A Trump victory, it said late last month, would trim that forecast by one to two tenths of a percentage point, owing to a prolonged trade war with China chipping away at growth. 

“The direct impact of the presidential election on the US economic outlook is likely to be modest,” the firm said.

However, Jefferies economists wrote this week that a Democratic sweep and $3 trillion stimulus might have produced 5.5% GDP growth in 2021. But a “skinny” stimulus worth $500 billion might yield 4% growth.

Health Care Demand

One of the stock market’s biggest moves as election results rolled in came from managed care providers. Humana (HUM), Anthem (ANTM) and Dow Jones stock UnitedHealth all logged double-digit gains for the week. Cigna (CIG) spiked more than 22%, as of Friday morning.

The industry had faced two risk scenarios. One was a dismantling of the Affordable Care Act. That risk, stemming from a Supreme Court case which could undermine the law, would be smaller with Biden in the White House. Yet it won’t completely go away with Mitch McConnell ruling the Senate.

The other risk was of a unified Democrat government launching a significant health care reform initiative.

By Friday morning, House and Senate leadership appeared headed for continued division — a prescription for more gridlock, and a pretty positive outcome for managed care providers with broad exposure to employer-sponsored coverage.

Even Centene (CNC), a Medicaid giant that had “the most to win from a Democratic sweep and the most to lose from (the) status quo,” according to analyst Gary Taylor at JPMorgan, rallied 15% for the week through Friday morning.

Election Results And Infrastructure Plays

Infrastructure spending, particularly under Biden, was another big-ticket item with the potential to shower heavy construction equipment makers, engineering firms and materials suppliers with tax dollars, Jefferies analysts said in a note. 

Martin Marietta Materials and Vulcan Materials (VMC), suppliers of ready-mix concrete, crushed stone and other materials used in large-scale construction projects, would be key beneficiaries.

So would equipment makers including Caterpillar and Terex (TEX), as well as equipment rental leader United Rentals. 

Shares of all those names took ferocious dives on Wednesday, as investors considered a divided Congress less likely to approve heavy spending initiatives. Some of the stocks, including Dow Jones stock Caterpillar and Terex, staged partial rebounds on Thursday.

More positive moves came from companies providing tires, fluids and other chemicals that make heavy equipment run. Berwyn, Pa., based synthetic rubber maker Trinseo (TSE) spiked almost 16%. Eastman Chemical (WMN) had a better-than 5% gain for the week. 

Election Results: Broadband Buildout

Earnings results combined with postelection speculation helped fuel some of the market’s biggest moves for the week, from names like Cloudflare (NET) and Lam Research (LRCX).

Longer term, the prospect of rising challenges related to the coronavirus pandemic have helped expose the need for sturdier internet capacity. As a result, alongside infrastructure spending, Jefferies also saw “increasing probability” of more money being channeled toward rural broadband development. 

Shares of Calix (CALX), whose software and Wi-Fi gear help telecom companies build out their networks, soared 14% during the election week. CFRA analysts noted in July that expanding rural broadband and 5G would boost demand for fiber-optic cable, a potential positive for Corning (GLW). Corning stock fell 10% in the final week of October, then rebounded almost 8% for the week through early Friday.

More GOP input will put greater emphasis on “traditional infrastructure,” Arone said. “Airports, bridges, roads, etc., and so things like industrials, and metals, and mining would do well.”

Biden, Bank Stocks And Oil

One camp of analysts contends that big financial companies could potentially suffer under a Biden presidency.

Bank stocks took a hit on Wednesday as bond yields tumbled. But bank stocks in general have rallied alongside the market during the postelection rebound, possibly due to the divided-Congress scenario. Goldman Sachs (GS) bounced more than 6% for the week through Friday morning. BlackRock (BLK) rallied almost 10%.

A Biden presidency and GOP Congress might be a mixed bag for the group. On one hand, more modest stimulus could keep interest rates lower for longer. On the other, financial stocks were among the big winners from the Trump tax cuts, which will stay in place if the GOP runs the Senate.

Unified Democratic control, which is still possible, could produce more bank-friendly interest rates, but tighter regulation.

Democrat-led restraints on banks aren’t likely to be as harsh as the Dodd-Frank regulations that followed the 2008 financial crisis. Still, as Biden gained in the polls, so did speculation about what role Sen. Elizabeth Warren (D-Mass.) might have in a new administration. Warren’s political ascent followed her leading role in the post-crisis Wall Street crackdown. 

“Throughout 2020,” Edward Jones analyst James Shanahan said over email, “we have been cautious on financial services stocks and we have been recommending that our clients reduce their exposure within stock portfolios, particularly to banks, due to concerns about credit and the outlook for interest rates and loan growth.”

Clean Energy Subsidies, Fossil Fuel Scrutiny

On the fossil fuel front, Biden has also said he would ban new oil and gas permitting on public lands. Initiatives such as green energy mandates, tax subsidies and fracking restrictions are less likely with a GOP-controlled Senate.

Reimposition of tougher fuel economy/emissions standards would be likely under Biden. And it would also mean a cessation of hostilities with states led by California seeking higher more stringent emissions standards as well as clean energy mandates.

In addition, “a new administration would lead to increased scrutiny for ongoing and new interstate pipeline projects that require federal permits,” JPMorgan analyst Jeremy Tonet wrote in the September report. 

Reining In Technology

Before this week’s market rally, Democrats and Republicans had both begun to scrutinize companies like Facebook, Alphabet’s (GOOGL) Google and Amazon (AMZN). Both political parties have argued that the tech giants hold too much sway over the way people shop, search and consume information. 

Biden has expressed support for cracking down on anticompetitive practices. But so has Trump, and the Justice Department last month launched a federal suit against Google. The aim, the department said, was to stop the search giant from what it said were “anticompetitive and exclusionary practices” in search and search advertising.

Again the prospect of a divided government made a cohesive antitrust assault less likely. Facebook stock swept ahead 12%. Alphabet and Amazon each soared more than 9% for the week through Thursday.

More broadly, Arone, of State Street, and Oppenheimer’s chief investment strategist John Stoltzfus noted that the pandemic has solidified digital adoption. Stoltzfus said he believed that digital technology’s place in time right now is similar to where the automobile was in the early twentieth century.

“That’s when a technology begins to be so broad-based, and so utilized, that it affects the way people do the things they do, whether it’s business or consumers,” he said. “And that means that consumers are lined up, waiting for the next upgrade.”

Election Results, Defense And Social Policy Issues

Elsewhere, despite the brief gains for some defense stocks this week, the U.S. defense budget is likely to only increase “modestly” under Republican control, JPMorgan said. That could translate into only modest gains for defense stocks like Lockheed Martin (LMT).

Those spending trends would face headwinds of concern regarding the coronavirus-fueled spike in U.S. debt. They would also come amid a bigger focus on emerging technology to confront adversaries like China, and amid efforts to get contractors to shoulder more development costs.

In some respects, Biden might be positive for big health care names, to the extent he focuses on broadening access to care, rather than supplanting private insurance.

“Health care might do better with Biden, in the sense that you get a national health care program that’s very broad based,” said Oppenheimer’s Stoltzfus, in an interview before the election results. “What it does in terms of controlling pricing or negotiating … health care companies will make up in increased volume in usage.”

Jed Graham also contributed to this article.


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