By Mia Lamar, Anna Prior and Jon Kamp
Investors keen to do some stock picking on Election Day have a massive landscape to consider as voter decisions at the ballot box have the potential to shake up major industries from healthcare to financials and beyond, while ballot measures in individual states put other stocks in play.
At the top of that list is President Barack Obama's signature 2010 healthcare overhaul, which Mitt Romney has pledged to repeal if he is made president.
While full repeal may prove challenging depending on how Tuesday's election shakes out in Congress, the law--major parts of which don't go into effect until 2014--could still face pressure if Mr. Obama loses his job.
The stakes appear highest for health insurers and hospitals. The law promises more customers for big health insurers like UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP) by extending coverage to millions of Americans, but also threatens to squeeze profit margins with new requirements like coverage for individuals with pre-existing conditions.
While investors in big managed-care firms may therefore hope for full repeal or major changes, hospitals such as HCA Holdings Inc. (HCA) and Tenet Healthcare Corp. (THC) stand to benefit if the law stays in place. Expanding coverage through commercial insurance and Medicaid could mean a smaller burden from patients who can't pay their bills.
Financial stocks will also be in focus this week, mostly due to expectations that a Romney administration would attempt to overturn the Dodd-Frank financial-reform law passed in 2010. The stocks could see a big boost this week if Mr. Romney clinches his bid for the White House, though any rally would have more to do with sentiment than reality.
Investment bank Keefe Bruyette and Woods believes investors are underestimating the difficulty Mr. Romney would face in overturning Dodd-Frank. He is almost certain, however, to make piecemeal changes like replacing the head of the Consumer Financial Protection Bureau, a federal agency created by Dodd-Frank, with an individual more sympathetic to his views.
One stock in particular that could rally on a Romney win is SLM Corp. (SLM), or Sallie Mae, the nation's largest student lending company. The Romney campaign has said it would reintroduce private lenders into the federal loan system, reversing a change enacted under Mr. Obama. SLM and other lenders have also come under new scrutiny from the CFPB, which recommended this summer that Congress adopt new rules like allowing student-loan debt to be discharged in bankruptcy.
Defense is another potential benefactor of a Romney win.
"The Romney campaign has said several times they want to see spending at 4% of gross domestic product and with Obama that trend is below 3%," said Stifel Nicolaus analyst William Loomis, adding investors will be focused on how the winner addresses the mandatory federal spending cuts set for Jan. 1.
Analysts at Bernstein Research agree that a Republican win would be "slightly more positive" for the sector, saying in a note to clients that Army programs and shipbuilding are two areas of defense that would likely benefit from a Romney win given how outspoken he has been on both issues.
Army equipment and service providers to watch include Exelis Inc. (XLS), L-3 Communications Holding Inc. (LLL), Alliant Techsystems Inc. (ATK) and General Dynamics Corp. (GD). General Dynamics could also score on the shipbuilding front, along with Huntington Ingalls Industries Inc. (HII).
Other stocks in focus
--A California ballot initiative, known as Proposition 37, will ask voters in the state to decide whether to require the labeling of foods that are genetically modified. An approval has the potential to hurt not only shares of bioengineering giants like Monsanto Co. (MON) and DuPont Co. (DD) but also major food companies like Kellogg Co. (K), General Mills Inc. (GIS) and PepsiCo Inc. (PEP). Roughly 70% to 80% of U.S packaged foods contain genetically modified ingredients, according to Bernstein Research. One potential beneficiary, however, could be Toronto-based natural-foods company SunOpta Inc. (STKL, SOY.T), according to Canaccord Genuity.
--Voters in Maryland are deciding whether to allow for a new casino in Prince George's County with Question 7. MGM Resorts International (MGM) is hoping to win the bid for the property if the measure is approved, which could hurt Penn National Gaming Inc.'s (PENN) nearby Charles Town, W. Va., casino, said Brian McGill, a gaming-industry analyst at Janney Montgomery Scott. Penn National shares have already come down 7% over the last month on expected passage, but a defeat could send shares higher.
--If the rally for coal stocks after Mr. Romney's "I like coal" comments in the first presidential debate are any indication, look for shares to get a bump post-election if Mr. Romney wins or see a selloff if Mr. Obama is victorious. Stocks to watch include companies with higher exposure to thermal coal like Arch Coal Inc. (ACI), Consol Energy Inc. (CNX), and Cloud Peak Energy Inc. (CLD), rather than the companies with higher exposure to steel-making coal, which is more dependent on the health of China's economy.
--Shares of gun makers could see action following the election, with an Obama win potentially spurring gun sales, similar to the bounce after the 2008 election, on fears of future regulation. A Romney win, on the other hand, could lead to softness for gun stocks as buyers potentially hold off on purchases, said Cowen Group analyst Cai von Rumohr. Stocks to watch include Smith & Wesson Holding Corp. (SWHC) and Sturm Ruger & Co. (RGR).
--Mr. Obama earlier this year denied an application by Canadian pipeline company TransCanada Corp. (TRP, TRP.T) to expand its Keystone pipeline--a key conduit for Canadian oil into U.S. markets--citing environmental concerns over the expansion's routing. Mr. Rommey has criticized that move, citing the boost to employment the project could create as well as its potential to bolster energy security.
Write to Mia Lamar at firstname.lastname@example.org, Anna Prior at email@example.com and Jon Kamp at firstname.lastname@example.org.
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