Investing in the Obama Factor
Hope, solidarity, better health care, and a new place for America in the world. These are some of the aspirations America has for the Obama presidency, but if you turn to the personal finance gurus, you'll find another aspiration -- making a quick buck.
From the latest green start-up to a major infrastructure play, stock soothsayers from all realms of personal finance have been compiling "Obama portfolios," since before the election result was even known. These are collections of companies from sectors that will benefit from the administration's policies, these analysts say -- often because there might be a direct government subsidy dangled in front of the sector.
Builders, agriculture companies, health-care providers and solar energy panel manufacturers all made the cut. Kiplinger's offered Vestas Wind Systems (VWS on the Copenhagen stock exchange), the world's leading supplier of wind turbines. Time listed publicly traded hospital company Community Health Systems (CYH). Yahoo Finance and CNNMoney.com reported on the Obama portfolios of other analysts, touting such stocks as Potash Corp. (POT) and Vulcan Materials (VMC).
Does stock-picking based on policy perceptions work? The evidence suggests not. Remember Bill Clinton's 1992 presidential platform? There was a lot there for infrastructure at that time, too, as well as other "human capital" investments. But then the administration tacked right, deciding to fight the deficit. Later, Clinton entered into various coalitions with Republicans that probably benefited the V-chip maker and the school uniform tailor over the cement mixer.
Not only do platforms change once in office, officeholders' impact on individual markets and companies is marginal at best. Slate's Daniel Gross pointed out that the 2003 Medicare prescription-drug benefit was seen as a future gravy train for large pharmaceutical companies. But the Amex pharmaceutical index underperformed the S&P 500 in subsequent years. Other company-specific, macroeconomic and global factors matter far more than government policies.
Perhaps all those stock pickers, combing platforms and sensing the economic winds, are misguided. The Big Money decided to take a different approach. Why not look at the personal connection between President Obama and publicly traded companies? Don't look at his policies, look at what he wears, drinks and symbolizes.
In other words: Which companies will bask in the reflected glory of the Obama cultural zeitgeist? After all, the Obamas represent more than a mere shift in government; they represent a cultural and generational shift. Who's to say, for example, that BlackBerry manufacturer Research in Motion won't benefit from Obama's iconic use of the device as much as Caterpillar will benefit from building shovel-ready infrastructure projects?
Starting with the opening bell on Inauguration Day morning, the Big Money invested $10,000 in imaginary money in eight Obama trend-surfing companies. We tracked that portfolio's performance against the market as a whole and against a more traditional Obama "policy-oriented" portfolio.
Our yardstick and competitor: Jim Cramer of CNBC's Mad Money, who once asked President Obama to make him a sort of czar of czars in charge of curing all of America's ills. In November, Cramer recommended his own Obama portfolio of 13 companies ready to benefit from the new government policies and the climate the administration is creating. His favorites included Deere & Co. (DE) (to benefit from new infrastructure programs), J.P. Morgan Chase (JPM) (best-positioned in the troubled banking sector), and Wal-Mart Stores (WMT) (as consumers flock to cheap, trusted products during a recession).
The Big Money's portfolio includes some iconic brands. We know the Obamas are Target (TGT) fans; and first lady Obama chose Target fan Michael S. Smith as the official White House redecorator. She also famously touted J. Crew (JCG) on NBC's Tonight Show during the campaign.
In anticipation of consumers picking up gear to play basketball just like Barack, we've added Nike (NKE), in whose sweats the president has been photographed. There's also Town Sports International (CLUB), known under the brand name Washington Sports Clubs, as well as similar outlets in Boston, Philadelphia and New York. Obama has been known to frequent this company's gyms, and his focus on physical fitness could inspire other Americans with looser schedules.
And to complement Research in Motion (RIMM), we've got Apple (AAPL), producer of the iPod, Obama's favored music-on-the-go device.
We've also got a few companies that tap more generally into the Obama phenomenon, even if Obama doesn't necessarily use their products. Obama made travel back to the 50th state cool and might even induce a few other customers to make the trip, so we added Hawaiian Airlines (HA) to our portfolio. We haven't seen Obama quaff any Pepsi (PEP) (his drink of choice is reportedly privately held Honest Tea), although he was drinking Pepsi's Aquafina water during the primary debates. And like Pepsi, you could argue that Obama represents the choice of a new generation.
How have events shaped the cultural scene versus the policy scene?
The Big Money has been disappointed by the paucity of opportunities for President Obama to show off the brands in our portfolio; he's too busy governing. He has even promoted companies in Cramer's portfolio. His stimulus-promoting tour took him to Caterpillar's plant in East Peoria, Ill., on Feb. 12, where he said the stimulus plan would lead to more hiring at the embattled construction equipment manufacturer. The move may have backfired, as Caterpillar chief executive Jim Owens said that although he supported the stimulus, the plan probably wouldn't lead to immediate job creation.
Neither portfolio has fully recovered from the impact of the post-inauguration market downturn, or the negative reaction to Treasury Secretary Timothy F. Geithner's bank rescue announcement. As of market close on Friday, the Big Money's portfolio was valued at $8,874.24, down 11.3 percent, compared with a 16.4 percent decline for Cramer's portfolio. We've done nearly as well as the Dow, down 11.1percent during the same period, though both portfolios trail the S&P 500 (down 9.4 percent).
And company-specific events continue to meddle with both theories. Apple is riding high off a recent non-Obama-related earnings report, up 10.8 percent since inauguration. Town Sports International is down more than one-third, following a pre-inauguration analyst downgrade and lower spending on consumer inessentials. Caterpillar's announcement of 20,000 layoffs hasn't stemmed that company's bleeding; the stock is down almost 32.6 percent since inauguration.
Now that the stimulus bill is law, we'll be hearing more about which sectors came out on top, and which companies might be poised to benefit. But that's just $787 billion. Some moments, like the sight of President Obama tapping on his BlackBerry, are priceless.