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Take stock in the presidents
Show your patriotism by investing in a company named for a leader of the free world. Or for his hometown. Or for his dog. A few are even good investments.
By Jon D. Markman
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And theres more to the General Mills-Millard Fillmore connection than just four letters. Fillmore was from Buffalo, N.Y., where General Mills makes the breakfast cereals Wheaties and Cheerios.
Some presidents simply failed the test: There are no companies named for Nixons or Milhouses, and I also struck out with James A. Garfield, James Buchanan, William McKinley, Herbert Hoover and Calvin Coolidge. Isnt it ironic that the two presidents most responsible for the Great Depression have no stocks associated with them?
Despite an utter lack of focus on the financial strength or value of any of my presidential contenders, I actually have high hopes for their success over the remainder of the year. Random lists have higher potential than most professionals will concede. A good example is the 2004 stock contest conducted by the Seattle Times newspaper.
In this game, newspaper readers were asked to choose 10 stocks from a list of public companies based in the Northwest. So far this year, the Readers Top 10 is up 4.6%, led by a 12% gain in Starbucks (SBUX, news, msgs), which is more than three times the Dow Jones Industrials year-to-date gain of 1.5%. Meanwhile, a randomly chosen list of 10 stocks tracked by the newspaper is up 8.6%, led by a 48% gain in Sonus Pharmaceuticals (SNUS, news, msgs). And my own list of 10, led by a 121% gain in Zones (ZONS, news, msgs) is up 23%. (My method: I took the 10 lowest priced stocks available.) Whats really fascinating is that my portfolio is only 70th best out of the 1,066 in the game.
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Some of the presidential contenders look pretty on their own:- Jefferson-Pilot (JP, news, msgs) is one of the many insurance stocks that have done great lately amid the expectation for higher interest rates. The dividend-payer has risen slowly and steadily from around $35 to the mid-$50s in the past year with no histrionics along the way.
- Tyler Technologies (TYL, news, msgs) is a profitable information-technology services company focusing on local governments and court systems that has gone from $3 to $11 in the past year, and recently backed off to the $9 area.
- Johnson Controls (JCI, news, msgs) is one of the many medium-size suppliers to the automotive industry that have improved in machine-like fashion over the past year. The dividend-paying, relatively inexpensive stock has advanced from $40 to $60.
Ill keep an eye on all 43 campaigners over the rest of the year, and well see if they rise or fall in the most brutally honest poll -- the capital markets. Just for fun, Ill also conduct an experiment similar to the Seattle Times contest. Pick the 10 stocks you think will do best, and send them to me at jdm68@lycos.com. Well see how many can beat the market, and how readers top 10 and a random sample compare to the broad market.
Whose stock is rising?
The week in which our nation pauses for reflection on the history of the executive branch seems an appropriate time to ponder how the current presidential election intersects with stocks. The Republicans and Democrats offer radically different economic visions, after all. And a race between President Bush and Democratic frontrunner John Kerry is increasingly difficult to call.
You have to expect the incumbent to win, as he has so many ways to pull fiscal and monetary levers to boost the perception of a strong economy for the benefit of his campaign. But to the extent that the outcome becomes more uncertain, the market may need to price in, or discount, the 30% possibility of a Democratic win. That discounting process might not be fun for investors, though in a moment well propose a way to game it.
Without meaning to turn this into a political science term paper, the major difference in a second Bush-Cheney administration versus a potential Kerry-Edwards administration is in tax policy. Bush has vowed to push for Congress to make his first administrations tax cuts permanent, while the Democrats have vowed to reverse them. Thats a gigantic overhang for investors.
A second key difference is in health care. The Democrats appear to want to roll back the clock to the first Clinton administration and rein in drug, medical and hospital costs via government fiat, while the GOP has been so friendly to the drug companies that Big Pharma was virtually allowed to write the new Medicare drug-benefit program. The Democrats would be less friendly to Big Energy, more hostile toward utilities, more prone to protectionism and more stingy with the Pentagon.
Bush has boxed himself in by depleting tons of financial capital on Iraq, Medicare drugs and the tax cuts. To the degree that the widening deficit prevents him from proposing even bigger new government entitlement programs to win over various groups of fence-sitting independents in swing states, he loses ammo in the battle for votes. (His budget proposal, submitted last week, already shows one glaring change from prior years: There are no new tax cuts proposed.) And to the degree that U.S. employment fails to meaningfully strengthen, he also loses critical ground in industrial states to the democratic slate. As market players weigh these possibilities, the sort of high-beta, high-P/E cyclical and financial stocks that did so well last year could suffer.
The most meaningful number facing the Bush administration at this time -- and, by extension, investors -- is 8.2. That was the number, in percentage points, of the year-over-year growth rate of U.S. GDP in the third quarter in 2003. GDP growth has to be faster than that blistering pace in the third quarter of 2004 for economic headlines to be positive for Bush a month before voting day.
How can Bush make the economy print a good number? Somehow the administration needs to encourage consumers, businesses and the government to spend as much in the third quarter this year as possible. That could be through lower interest rates, sparking another round of home mortgage refinancing, as well as government hiring and a new round of Pentagon spending.
Fine Print
My column on small natural-gas and oil exploration companies, which was promised for today in last weeks column, will run next week. . . . To learn more about the presidents, visit the excellent history section of the White House Web site. . . . Click here for lists of interesting facts about presidents. Youll discover that the most popular religion among Presidents appears to have been Episcopalian; that 12 presidents had absolutely no military experience; that President Lincoln fought in a conflict called the Blackhawk War; that Gerald Ford is the only president who was not elected president or vice president; and that eight presidents were born before the United States was formed.
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Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jdm68@lycos.com. At the time of publication, Markman did not have positions in any securities mentioned in this column.
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