Can a do-nothing Congress do wonders for a carefully selected stock portfolio?
Strategas Research Partners, a New York investment shop, suggests that a likely summer of policy gridlock in Washington will produce corporate winners and losers, based on laws that won't be passed and others that will remain in place due to inaction.
The firm has just compiled the Strategas Congressional Gridlock Index, a group of 16 securities to own or sell short based on how companies are expected to fare assuming Congress fails to act on a variety of issues ranging from oil exports and the Keystone pipeline to a minimum-wage increase and more.
Daniel Clifton, head of policy analysis for Strategas, says: "Gridlock is creating an investable theme for investors to be long Washington dysfunction."
Here are some of the policy fronts along which legislators are unlikely to make much progress, and the companies that could benefit or suffer as a result, in Strategas' view:
-Legislative reform of the mortgage-finance companies known as government-sponsored enterprises isn't imminent, leaving "courts to rule on whether the government illegally swept profits from shareholders," Clifton says. This is a net positive for Fannie Mae (FNMA) shares.
-Congress is unlikely to repeal the ban on crude-oil exports, despite record domestic production, which could create a glut of light-sweet crude on the Gulf Coast. This would pressure U.S. crude prices, which leads to a recommendation to short the crude exchange-traded fund U.S. Oil Trust (USO) and buy refiner Valero Energy Corp. (VLO), which is helped by cheap crude.
-The implementation of Obamacare is, on balance, good for insurer Wellpoint Inc. (WLP).
-Extended unemployment benefits won't be renewed, nudging more jobless people into the workforce and helping temporary-help agencies such as Robert Half International (RHI).
"It is possible Congress passes a minimum-wage increase layer this year, but for now the two parties are not in the mood to compromise," says Clifton. YUM Brands Inc. (YUM), parent of Taco Bell and KFC, has been a vocal opponent of a minimum-wage hike, and its stock could be supported by inaction on the issue.
-Legislation allowing states to impose sales taxes on Internet retail purchases remains a live possibility, though as the months pass and the mid-year election approaches, this sort of controversial measure will become tougher to pass. EBay Inc. (EBAY) is a direct beneficiary of the status quo. Best Buy Inc. (BBY) avidly wants online sales to be taxed, to place its physical electronics stores on more-even footing with e-commerce competitors. On the assumption that no Internet sales tax gets through Congress, Best Buy is a short in the Strategas index.
-Assuming no broad immigration reform is enacted, Cognizant Technology Solutions Corp. (CTSH) shareholders should experience some relief, because the primary proposal would severely restrict outsourcing companies such as Cognizant. A lack of immigration reform is a negative for Accenture PLC (ACN), which has a big "border and identity management practice."
-Almost no one expects Congress to crimp political advertising anytime soon, and there is an abundance of skirmishes for House and Senate seats on the way. So, unfortunately, expect months of shrill political commercials. That's good for CBS Inc. (CBS), a pure play on network and local TV advertising.
While this "index" is mostly a device for focusing on policy-dependent business influences, and Congressional inaction won't make or break any of these stocks, investors who own or trade them should be aware of the political drivers. For those inclined to bundle these stocks and others into a basket, incidentally, online broker Motif Investing specializes in allowing investors to buy ready-made themed baskets or to create one of these "motifs" - a virtual fund of up to 30 stocks that can initially be bought for a single $9.95 fee.
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