Home construction and real estate
The Obama administration and Federal Reserve targeted the homebuilding industry for special attention, because it is among the few industries that cannot outsource jobs overseas. The industry also provides the best income to workers without college educations and has a ripple effect on the economy, as new homes require paint, lumber, furniture, lawn care and the like.
The iShares Dow Jones US Home Construction (ITB) ETF offers the purest exposure to the industry. It’s up 133% during the Obama term so far, versus 69% for the S&P 500, and it’s still very strong. The best individual stocks include Lennar (LEN), PulteGroup (PHM), Louisiana Pacific (LPX), Eagle Materials (EXP) and M/I Homes (MHO) among the larger companies, as well as peripheral players like lawn-care machinery maker Toro (TTC), swimming pool supplier Pool (POOL) and carpet maker Mohawk Industries (MHK).
Likewise the real estate industry has benefited enormously from policy over the past four years, as quantitative easing has involved directly buying securities that support residential and commercial construction. The iShares Dow Jones US Real Estate (IYR) ETF includes all the major players, including regional shopping mall specialist Simon Properties (SPG), which is up a cool 315% since Obama entered the Oval Office and still looks fine. Two new stocks with promise in the red hot mortgage servicing business are Nationstar Mortgage (NSM) and Home Loan Servicing Solution (HLSS).
Mobile communications
The Obama administration has not promoted a coherent technology policy. But outside of a couple of attempts to rein in Google (GOOG), it has not willfully attacked the tech industry either. The group has risen 114% during the four years, led by the 675% blitzkrieg of Apple (AAPL) and 390% advance of Amazon.com (AMZN).
One subgroup in the industry that appears set for further improvement is the cellular tower owners. There are relatively few of them, and they get paid in part on a metered basis, so they are neutral parties that are prime beneficiaries of the explosion in mobile communications. Top names are SBA Communications (SBAC), American Tower (AMT) and Crown Castle International (CCI).
For a contrarian pick over the next four years, consider a bet on a surprise resurgence at Dell (DELL) or Hewlett-Packard (HPQ), which are clumsily trying to shed their personal computer legacies in favor of services, and may well find opportunities ahead.
And for the small caps, two companies with a shot at finding success in the patchwork new world that employers and hospitals will face in health care and the digitization of medical records, consider WageWorks (WAGE) and Greenway Medical Technologies (GWAY).
Financial services
Over the past four years, consumers have largely reined in their spending and streamlined their use of plastic, and that has actually benefited some of the nimbler companies in the credit and transaction businesses. Delinquencies have fallen dramatically, and the use of credit cards is actually up.
We can expect a second Obama administration would attempt to reinforce these trends, and that would improve the opportunities for the industry’s leaders.
Three companies to watch on this score are Capital One Financial (COF), Discover Financial Services (DFS) and MasterCard (MA). The last is the easiest call, as it will grow at a multiple of the growth of credit and debit transactions, and has largely escaped all attempts to rein in its profitability or ubiquity.
Energy
Energy producers have fared surprisingly well in the Obama years, led in part by the companies in the complex that were the most capable of staying one step ahead of the regulators and in part by the ones paying the largest dividends to yield-starved pensioners. Companies that sell chemicals into the energy market have also fared well, as margins have improved and Department of Environmental Protection rules have been surprisingly restrained.
Some of the best in the energy patch are Cabot Oil & Gas (COG), and high-yielding master-limited-partnerships Plains AllAmericanPipeline (PAA), Enterprise Products Partners (EPD), Kinder Morgan Energy Partners (KMP), Linn Energy (LINE) and refiner Calumet Specialty Products Partners (CLMT).
On the chemicals side of refining, look for continued success from NewMarket (NEU), W.R. Grace (GRA) and LyondellBasell Industries (LYB). The high-yield stocks issue new shares in secondaries fairly frequently, so wait until one of those 3% to 5% short-term setbacks to buy.
Overall, economic and political cycles suggest the first year of a second Obama aAdministration could be rough as investors adjust further to slowing global growth and peak earnings.
While the full second term is likely to turn out well for stocks, if you are nimble, you may wish to wait for at least one 15%-plus correction in mid-2013 to take on a full plate of risk.
A good analogy might be the second term for President Clinton. The entire four-year period yielded a very respectable 77% return for the S&P 500 and whopping 252% return for the tech-bubble Nasdaq 100. But the first two years were both marred by separate 10%-plus slides in the spring and winter.
Bottom line: Expect the market to continue its bromance with Obama in a second term, but buy into it opportunistically when panic is in the air.
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