It appears we’re headed for a split Congress with a Democratic president. Historically, that’s very good for stocks. Here are three stocks for a divided government.
In the past week, the stock markets have had their best days in more than seven months. Most of the bullish sentiment seems to be credited to the probable election results. As of this writing (editor’s note: this was written last Friday morning), three days after the election, we still don’t know who is going to occupy the White House—but the electoral votes are definitely leaning in former Vice President Joe Biden’s camp.
As I’ve written before, market statistics prove that it doesn’t really matter who is president. But what this recent rally tells us is that investors and the market do like a divided government, and that is looking ever more likely. So today, I’ll reveal three of my favorite stocks for a divided government.
Investment firm Jeffries looked at market data following elections back to 1989. It found that when a divided government was led by a Democratic president, the average S&P 500 gain was 33.9%. Without a divided government, the gain was 22.5%. Conversely, with a Republican-led White House and divided government, stocks declined 2.8%.
And in the current political climate, when coronavirus continues to rage around the world, fears of a lengthening economic crisis are real. Europe is beginning to shut down again, and the U.S. is seeing record cases and rising death tolls on a daily basis. The stimulus packages in the beginning days of COVID-19 helped keep us from plunging into an even worse recession, but the talks have been stalled during these last days of the election process.
Once the election is concluded, investors are hoping that stimulus actions will be quickly revived and passed, which should help keep employment rising and the economy back on track—at least until we get a vaccine that stops coronavirus in its tracks. And that is more likely to occur with the looming prospect of a divided government—especially in light of Speaker Mitch McConnell’s announcement that he expects new aid to come before the end of the year.
So, stimulus is most likely the first action once the election is decided. But the real catalyst for why the markets are now rising is the longer-term impact of a gridlocked Congress. The sentiment is that the Republican Senate will rein in the anticipated spending excesses and tax increases of a Democratic president and House of Representatives. And a middle-of-the-road, more moderate platform will be welcomed on Wall Street.
The Best Sectors for a Divided Government
Two sectors that are emerging as the winners in a divided government are Healthcare and Technology.
Healthcare stocks are rising, because fears of an industry upheaval that would result from a Democratic sweep of both the presidency and Congress would be mitigated. Obamacare is likely to remain—whether you like it or not. But further pressure on the medical industry for significant cost-cutting, lids on prescription prices, and increasing regulation, should subside.
Technology stocks are rising because Trump’s continued battle against tech companies, especially the FANGs, will go away, as will the fear of over-regulation in that industry.
And that brings us to the question of which companies in these sectors will most likely benefit. The answer is a lot of them! Certainly, FANG stocks should be fine.
But I wanted to look at some companies that played in smaller arenas. I searched for stocks that looked good, both on a technical and fundamental level. And I found about 20 that met my requirements for solid management, as well as positive growth in both sales and earnings.
I whittled my prospects down to three companies that look very interesting.
Stock for a Divided Government: TTEC Holdings, Inc. (TTEC)
TTEC Holdings offers digital transformation services in the realms of customer care, acquisition, and fraud detection and prevention services. Its customers operate in the automotive, communication, financial services, government, healthcare, logistics, media and entertainment, retail, technology, transportation, and travel industries. And it’s a global company, with operations in the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Costa Rica, Germany, Greece, Hong Kong, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, Singapore, South Africa, Thailand, the United Arab Emirates, and the United Kingdom. Last quarter, the company posted EPS of $0.90, far better than the $0.54 Wall Street had expected. For the next five years, it is projected to grow earnings at an annual rate of 19.4%.
Stock for a Divided Government: Gartner Inc. (IT)
Gartner is a research and advisory company, operating through three segments: Research, Conferences, and Consulting. The company has operations in the United States, Canada, Europe, the Middle East, Africa, and internationally. For its last quarter, Gartner’s EPS handily beat analyst estimates, coming in at $0.91 vs. the forecast of $0.52. EPS is projected to grow at a 10% annual rate over the next five years.
Stock for a Divided Government: Bio-Rad Laboratories, Inc. (BIO)
Bio-Rad offers life science research and clinical diagnostic markets in Europe, the United States, Canada, and Latin America. The company’s products and systems separate complex chemical and biological materials, and identify, analyze, and purify components. Helped by COVID-19 testing, Bio-Rad blew the doors off its earnings forecasts, posting EPS of $3, and walloping Wall Street’s estimates of $1.80. Its five-year annual growth rate is projected to be 17.8%.
As always, these are just a few ideas for you—hopefully, one or more will pique your interest and fit into your portfolio goals and strategies.