It’s best to leave your politics at the door when investing. No matter how much you like or dislike the man in the White House, presidential policies generally matter a lot less for the stock market than Federal Reserve policy or the general health of the economy.
That said, the best stocks to buy under a Republican administration are sure to be different than those under a Democratic administration.
We’re currently in the homestretch of what has already been a raucous election cycle. But it’s far from over. As of late July, the betting markets were pricing in a 60% probability of former Vice President Joe Biden taking the Oval Office. But as recently as June, it was a dead heat, and President Trump had an 8-point lead for most of April and May.
Meanwhile, most national polls show Biden with a roughly 8% lead. But his lead in the six battleground states that really matter this election – Arizona, Florida, Michigan, North Carolina, Pennsylvania and Wisconsin – is only about 3%, barely outside of the margin of error.
In other words, this race is far from over.
“We’re advising our clients to be cautiously optimistic going into the election,” says Chase Robertson, Managing Partner of Houston-based RIA Robertson Wealth Management. “We’re hedging our bets, raising a little cash and spreading our positions across sectors we think will do well regardless of who takes the White House.”
However, those who want to try to generate additional returns by front-running the election should know that the prospective winners under a second Trump administration are a very different mix than those that might shine with Biden in office.
We’ll start with Bank of America (BAC, $24.99), one of the Big Four financial stocks.
Republican administrations have traditionally been friendlier to large banks than Democratic ones. And Trump’s slashing of corporate tax rates in the Tax Cuts and Jobs Act was particularly beneficial to banks.
“Wall Street veterans Larry Fink and Lloyd Blankfein, along with presumptive Democratic Presidential nominee Joe Biden, have suggested deficit-reducing increases in corporate tax rates,” write Keefe, Bruyette & Woods analysts. By KBW’s estimate, raising the corporate tax rate to Biden’s suggested 28% levels would reduce earnings per share by about 8% for the sector, and by more than 9% for Bank of America specifically.
Now, a 9% bite out of profits per share isn’t catastrophic. But it does mean less cash available for dividends, and presumably, it would slow share price growth. So, BofA likely would respond well to a Trump presidential victory.
Beyond the election, Bank of America isn’t a bad-looking stock at current prices. It yields just shy of 3% in dividends, and Warren Buffett recently topped up his already-large investment in BAC with an additional purchase of $800 million in BAC stock.
This is part one of a two-part article that originally appeared on Kiplinger. To continue reading, please see 10 Best Stocks to Buy If President Donald Trump Wins Re-Election.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.
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