New Hampshire Watch: What a President Rick Santorum Would Mean for Investors
Senior Editor, CNBC.com
Rick Santorum bills himself as the “family, faith and freedom” candidate. And his economic plans largely live up to this billing.
Santorum, like the rest of the Republican field, believes that taxes are too high. He would simplify the income tax by reducing it to just two-brackets, 28 percent and 10 percent. He would reduce the corporate tax rate from 35 percent to 17.5 percent—and eliminate corporate taxes on manufacturers altogether.
Santorum also would end the marriage penalty and triple the personal income tax deduction for each child.
Santorum’s still a long way off from the presidency. But with the New Hampshire primary coming next week, we thought it would be useful to explore how a Santorum presidency might impact investors.
To begin with, Santorum’s corporate tax plan would be a huge boon for corporate America, making US companies better able to compete abroad.
It would also likely encourage US companies to repatriate more money held abroad, which would allow the money to be spent to create new jobs and paid out to shareholders as dividends.
Manufacturing companies, of course, would be huge beneficiaries. The five biggest US manufacturers are Exxon, Chevron, ConocoPhilllips, General Electric (the minority owner of CNBC’s parent company) and General Motors. (Are energy companies like Exxon really involved in manufacturing? Apparently so, according to at least one source. It's unclear right now whether Santorum's tax plan would agree.)
Tech companies Hewlett-Packward, IBM Corp, Dell, Microsoft, Intel, and Apple would be big beneficiaries.
A smart move might be to investigate which US manufacturers paid the highest corporate tax rates last year—since they’ll get the biggest boost from the zero rate. Many of the biggest manufacturers, including General Electric, have shown the ability to reduce their tax rates even under the current system—which could limit the upside from Santorum’s plan.
In the ETF world, iShares Dow Jones US Industrials might benefit from the zero-tax for manufacturers.
Perhaps less obviously, the boost to manufacturers could give a boost to the metals market. Industrial metals such as copper, aluminum, nickel, and zinc could come into higher demand. Likewise, mining stocks, such as Freeport-McMoRan Copper & Gold could come into favor.
(Beware, however, of a slow-down in Europe, which could take the steam out of the industrial metal plays.) ETF plays could include Vanguard Materials ETF , PowerShares DB Base Metals , and iPath DJ-UBS Nickel TR Sub-Idx ETN .
Santorum’s child-friendly tax policy might mean people start having more children. It will certainly give parents more spending money. One natural place to play—if you’ll excuse the pun—on this would be child-care stocks. Unfortunately for investors, this once hot sector has mostly been taken private. Companies like Bright Horizons and CorporateFamilySolutions aren’t public anymore. Similarly, Toys R Us is now a private company.
The closest to pure play baby-boomlet companies I could find were Carter’s, the baby clothes manufacturer that owns the popular Carter’s and OshKosh brand, and Children’s Place , another clothier for infants, toddlers and young children. Most analysts agree that Santorum’s tax plans would result in lower revenues for the federal government, which would mean deficits would likely grow. This might impact the appetite for Treasurys, although recent experience has suggested that there is no limit to investor appetite for bonds issued by the US government.
Santorum plans to balance some of the lost revenue with cuts to Medicaid and Medicare reform. This could mean that certain Medicaid focused healthcare providers take a hit. Centene (CNC, Amerigroup Corp., Molina Healthcare Inc. and Wellcare Health Plans Inc. are all highly exposed to Medicaid.
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