Sunday, November 9, 2008

Obama's coming.

Do you sell tobacco stocks? Buy ethanol shares?

Dump fast-food restaurants? Load up on generic drugmakers?

In time-honored fashion, market players are combing over the president-elect's policy proposals to discover which industries will benefit and which will suffer.

Citigroup Global Markets sees some risks. Big oil companies stand to lose from Obama's proposed windfall profits tax. The levy would go into effect when oil sells for more than $80 a barrel. Shares of brokers and asset managers could suffer from a proposed increase in the capital gains tax. Tobacco companies are targeted for a federal excise tax to support expanded children's health insurance.

Citigroup also has identified potential winners. An Obama administration aims to grant subsidies to ethanol producers. Universal health care, which needs to keep prices low, would help generic drugmakers. Low-end retailers could get a boost if low-income families get tax cuts.

Jim Wiandt of IndexUniverse.com, which focuses on index-based investing, says the profits of fast-food restaurants could come under pressure if Obama succeeds in raising the minimum wage.

But there's a hitch to an Obama portfolio. It makes perfect sense to get in early on major shifts in policy. The changes undoubtedly will have business consequences. But can't plans change? Ambition collide with reality?

"Many factors outside the control of the president, or of Congress, affect the fortunes of individual companies and entire sectors," warns Morningstar in a report titled "Why It's Risky to Mix Politics and Investing."

Economic weakness, commodity prices, currency swings, consumer shifts, international turmoil -- the list of potential disruptions to the plans of any president is long. When environment-friendly Al Gore became Bill Clinton's vice president, many environment mutual funds hit the market, Morningstar points out. The Clinton-Gore administration did take some action, but the sweeping environmental legislation once envisioned never materialized. And the funds' performance proved disappointing.

-- Steven E. Levingston