A Two-Faced Strategy to Playing the Election
Changes in the balance of power in Congress as well as how Washington handles the fiscal cliff have the capacity to shake up the broader market.
Even still, winners will emerge.
“The individual sectors and stocks that will outperform will present themselves in the first 100 days of the next administration,” Hirsch said, noting investors must exercise patience, caution and superior stock selection. “We pinpoint stocks that are growing, yet are still undervalued and maintaining momentum.”
Rather than choosing sectors that may favor Romney or Obama, tactical investors would be better served picking equities that are likely to produce returns regardless of who gets the majority vote, Stovall says.
“If the candidate or party chooses not to focus on a particular issue, then maybe you have purchased stock in anticipation of something that does not materialize,” he said. “Go for those stocks that are likely to do well under either administration and that are closely tied to the fortunes of the global economy.”
Telecommunication stocks are a good example.
As the highest-yielding sector with the S&P 500, telecom stocks may indeed benefit from a dividend friendly Romney administration, but Stovall notes these companies have consistently raised their dividend regardless of party affiliation within the White House.
“Also, one of the components of the Medicaid program is the Lifeline prepaid card, which provides a prepaid telephone card to recipients of food stamps,” Stovall said.
Natural gas stocks may also do well under either president, he says, since Romney would encourage domestic production, and Obama has publicly embraced natural gas as a transportation fuel.
Even tactical investors, however, should maintain an asset allocation befitting their time horizon and risk tolerance, says Stovall.
“Investors should look inward and adhere to what Dirty Harry once said: “A man’s got to know his limitations,’” he said.