And so it begins — with every significant social change, every newsletter and investment service has to come out with a teaser list of the “top ten” or the “three to buy now” or, in this case, the five stocks you must buy to be prepared to profit in an Obama presidency.
New presidential administrations are a little bit like Rorschach tests — you see in them what you want to see. Some will see a newly crushing tax burden, others will see tax cuts; some will see huge federal infrastructure spending, others cuts in corporate subsidies. Almost anything is possible, though it’s quite likely both that there will be changes, and that no one can accurately predict exactly what or when they’ll come.
You can, however, make an argument that the priorities new administrations have shown in the past, or that democrats have espoused, or that Obama himself pledged on the campaign trail, leave clues as to where federal dollars and preference will flow. And invest in those areas, with hopes that you can predict which company will best profit from federal policy changes or largesse. It is, at least, more fun than trying to predict which companies will profit from the collapse of Western Civilization and the fall of the global financial system.
So which five stocks does Zack’s think will do well under President Obama? I’ll get to two of them right now, and come back to add some thoughts on the other three shortly.
Let’s see if we can’t get some good solutions to these little teasers. They’re short, so don’t worry …
“Obama Stock #1: Solar powerhouse already heats up earnings.
The Democrats are calling for 10% of energy to come from alternative, renewable energy sources by 2012. This company exploded its earnings by +171% in Q2 2008 and will benefit from the push into solar power.”
Jeez, one measly little clue? From this, I’d have to guess that we’re talking about Trina Solar (TSL). They did boost revenues by 171% in the second quarter of this year, and their net income did climb by 171% in the first quarter, according to Morningstar. No other solar company I looked at had even close to a similar performance.
Trina Solar is a maker of photovoltaic cells — the “old” kind, using silicon, not unlike Suntech Power or SunPower or any of a legion of competitors who make “regular” solar cells (as opposed to the thin film or alternative material solar companies like First Solar). These kinds of cells are still, by leaps and bounds, the most efficient, and they’re used in most installations — but they’re also fairly unattractive, big, heavy, and bulky. SunPower has staked its claim on high efficiency (their cells lead the pack on this frong) and a big US presence and installer network, and Suntech Power and Trina Solar seem largely to push for volume and cost advantages, using their low cost manufacturing bases to compete.
Is Trina any good? Well, they were picked by Robert Hsu back when the China train was still chugging right along (that was back in March of 2007, when the company was newly public and the shares were around $40), he essentially pegged them as the next Suntech Power. One thing you can definitely say for them is that they are a LOT cheaper now — shares are down around $11, and the PE ratio is in the low single digits.
If you’re like me, you’ve seen lots of articles about the boom we should get in solar power under an Obama presidency, in part because he has consistently pledged to increase investment in alternative energy and build a new industry that will create American jobs in this sector. Solar also got a boost from the Congressional renewal and improvement of tax credits and incentives for alternative energy, and solar in particular was favored by that new legislation, so I wouldn’t be at all surprised to see the solar power industry keep growing. Trina is a fairly small fish in the business, but they do have a cost advantage over some companies, thanks to their Chinese manufacturing. They do suffer from some of the problems that have plagued other big solar companies, particularly their dependence on polysilicon and the uncertain supply and pricing of that commodity.
There is probably something else stinky in this kettle, to get a valuation this low, and I don’t know from a quick glance what it is — could just be that they’re Chinese, or that they need to borrow to expand, or that they don’t have good polysilicon supply contracts, don’t know — but with a PE of 5, I’d want to find out why it’s that low before investing. If the shares go up in the interim while you do your research and you have to buy them a bit later at a PE of 7, well, the earth won’t have stopped rotating … there’s no rule that says the PE can’t go down to 3 instead.
Skipping ahead to the end, and I’ll come back to the middle ones soon…
“Obama Stock #5: Railroad equipment supplier arrives ahead of schedule.
“Investing in roads, airports, and railroads have been a hallmark of Democratic policy. Obama’s election is likely to speed up a railroad supplier that’s already steaming ahead, recently expanding its presence in Africa and inking an agreement to acquire a leading competitor.”
Get it, “arrives ahead of schedule?”
This is Wabtec, Westinghouse Air Brake Technologies (WAB). They did just recently expand their South African operations, and they’ve enjoyed a nice run in the railroad renaissance brought by high diesel prices and growing shipments of commodities like coal and corn. The share price has fallen off recently, along with almost everything else — it peaked around $60 in September, and you can currently buy shares for just a hair under $40. Valuation would have looked like a bargain six months ago, but now that everything looks like a bargain it’s anyone’s guess — they don’t have much in the way of direct competitors. WAB is much more expensive than some railroad suppliers, like Trinity, but unlike Trinity which sells more of a commodity product (rail cars, among other things) WAB sells a specific product that’s patented and, apparently, in fairly high demand.
WAB has been growing earnings and sales for the past several quarters — and, unlike many other companies I’ve looked at, they’ve been beating estimates all year. Not dramatically, but still it’s nice to see. Analysts guess that they’ll grow about 15% a year for the next few years, and the PE ratio is about 15 (actual earnings, not projected). They do pay a teensy dividend of four cents a year, and their balance sheet looks great at a quick glance (more cash than debt). Don’t know if it’s worth your time, but if you think railroads are going to continue expanding their … I don’t even know what you call them, fleets? If you think there will be more trains on the tracks, and you believe that they’ll want those trains to be able to stop, perhaps WAB’s growth will continue.
So … do you like these two? Want to propose some other Obama stocks? I’ll be writing more about this kind of stuff in the weeks ahead, I’m sure, and I’d be happy to hear what you think …