1) Environment/Alternative Energy
During Obama's campaigning he discussed spending upwards of $150 billion over 10 years to develop clean-energy alternatives. Based on early indications from the stimulus bill and other thoughts, I would suspect that if anything that number is conservative. All that being said, I still think its very difficult to figure out exactly which alternative energy will take off (if any) and therefore I would look at the consulting firms such as Exponent (EXPO) and Ecology & Environment (EEI) for investment. I am somewhat concerned by solar names as they have a significant reliance on high energy prices along with subsidies from various governments and I would therefore be cautious on those names. That being said, I think the green movement will continue for at least 4 more years.
I don't think this pick will surprise anyone but certain infrastructure companies should benefit from increased government spending and then as we get into the later years of the Obama administration by an improving economy. A couple of small cap companies I like here are Meadow Valley (MVCO) and Perini (PCR). Infrastructure should also be helped by increased federal aid to states.
I would be careful with these in the short term but over the cumulative 4 year period where Obama is in office these are likely to outperform. Clearly, with the large amount of money being poured into the economy by the government, taxes will have to rise at some point. Income from REITs is not eligible for the lower tax rate on capital gains and therefore a closing of the gap between income tax rate and capital gains rates could be beneficial for companies in this space. An interesting company here is Entertainment Properties (EPR), who is focused on entertainment properties such as movie theaters which have held up relatively well in the current difficult economic environment.
4) Generic Drugs
It is very possible that Obama will work to lower prescription drug costs through the negotiation of prices with pharmaceutical companies. This could benefit generic companies who offer low-cost medicines to consumers. Some potential winners are Teva Pharmaceuticals (TEVA), Watson Pharma (WPI) and potentially smaller names such as Caraco (CPD) or Mylan (MYL).
5) Lower End Consumer Good
The potential of increased tax breaks on lower income individuals could help some of the retailers focused on this audience such as Aaron Rents (RNT), 99 cents Only Stores(NDN), Family Dollar (FDO)and potentially even McDonald's (MCD).
Obama has made it clear that he would like to increase spending on education and at the same time increase potential tax write-offs for those attending universities. The issue with many of the education stocks is that many have had a nice run-up already and are trading at fairly high P/E levels. Therefore, I would hold off on these names for now but the universe which includes APOL, CECO, COCO, DV, APEI, ESI, STRA and even WPO (Kaplan) could be attractive if they were to decline 15-20% from current levels.
I'd also take a look at many of the cash-rich companies that have low debt loads which populate the market in high numbers at the present time.
Jan 24, 2009