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9 swing-state stocks from the Oregon Trail
Kerry and Bush are targeting Oregon, a swing state where the economy and joblessness are key issues. Here are the state's top 9 stocks and how they'd fare under each administration.
By Jon D. Markman
The road to the White House this year leads through Oregon. The state has voted Democratic for the past four elections, but that result is not assured this year. Both candidates for president have treated Oregon as a so-called swing state, and have heavily campaigned there with personal appearances, advertising and direct mail.
This matters to investors for two reasons: Oregon has the countrys worst unemployment rate, and the states industrial base is split nearly evenly between the uncertain new promise of technology and the musty old promise of heavy industry. If a candidate can make his message resonate among the stakeholders of this state, he can be attractive just about anywhere else as well. As goes Oregon, so goes the nation.
From an investment point of view, many of the states businesses were so beaten down during the bear market that the market has treated the entire state as a value play. A candidate who can persuade voters there that he will turn the place into a growth play will help both himself and investors win big over the next four years.
Jobs lost, incomes drop
How can a president do that, and what stocks should you play for a rebound? Lets start with some alarming figures, then go straight into my equity forecasts.
According to the U.S. Bureau of Labor Statistics, Oregon has lost almost 25,000 manufacturing jobs over the past four years and family income has dropped by almost $1,500 per year. The official unemployment rate in August was 7.4% -- worst in the nation. According to Phil Romero, professor of business administration at the University of Oregon's Lundquist College of Business, structural unemployment in many rural counties formerly dependent on logging runs as high as 20%.
As bleak as that sounds, the picture is actually improving. According to state researchers, job growth grew at nearly a 4% annualized clip in the second quarter, and another 2% increase in jobs was probably recorded in the third quarter -- the strongest back-to-back quarterly performance in the state since 1997. High-tech manufacturing has improved the least, with actual declines of around half a percent, while transportation equipment companies, construction and professional services companies are doing the best, with gains of 4%.
Its interesting that the stocks of the states largest companies forecast these results.
Chips for Kerry
The states biggest private employer is global semiconductor giant Intel (INTC, news, msgs), with more than 15,000 jobs on seven campuses. The company has struggled to assert itself beyond the personal computer, and has found that marketing alone cannot drive sales. Shares are down 30% in the past year, and 53% in the past four years of the Bush administration, though they have recently stabilized at around $20, and now appear destined to go higher.
Investors betting on a Kerry presidency would tend to bid Intel up, as his administration would be more likely to refocus government spending on domestic goods rather than on the military, and his administration is expected to be more empathetic to holders of patents and other intellectual property. The fortunes of Intel should advance with Kerry in the polls.
And speaking of semiconductors, the state of Oregon managed to leverage its beautiful scenery and inexpensive but educated labor base to entice a great many other much smaller chipmakers to its lush valleys in the 1990s. Programmable logic maker Lattice Semiconductor (LSCC, news, msgs) and communications chipmaker TriQuint Semiconductor (TQNT, news, msgs), whose shares are both down 80% since Bush took office, have halted their slides and begun to work their way back up in recent days as the presidents fortunes have diminished. Count these as more chips for Kerry.
Where Bush wears well
Oregons best-known publicly held company is Nike (NKE, news, msgs), which employs 25,000 and earned $1.1 billion on almost $13 billion in sales of sporting merchandise over the last 12 months. The company has prospered mightily under the Bush administration, and its shares would probably do much better under another four years of Bush than under Kerry.
Thats because Nikes greatest prospects are overseas, and Bush has surprised the world with an accommodating stance toward free trade. Kerry, on the other hand, has vowed to penalize companies that outsource their manufacturing and threatened to back tariffs -- just the ideas that could put Nike itself in the penalty box. A bid for Nike then is a bid for Bush.
Apparel maker Columbia Sportswear (COLM, news, msgs) is in the same boat. The employer of 3,000-plus is a quintessential marketing machine with rigorous roots -- much like Nike -- and has likewise prospered in an environment of loose regulatory attention to the sort of overseas outsourcing that boosts profits. Shares are up 270% under the Bush administration but have cooled considerably in recent days in the face of Kerrys resurgent candidacy and the stronger dollar.
Oregons biggest industrial employer -- with more than 16,000 jobs -- is Precision Castparts (PCP, news, msgs), a maker of highly engineered metal products for aircraft and gas turbine manufacturers. Company shares have soared during the Bush administration, up 385% since January 2000, as orders from both Pentagon suppliers and utility companies have improved dramatically. Earnings and revenue are both compounding 20%-plus, and yet the companys exposure to the troubled airline industry keeps its valuation premium low, with a 17-times price/earnings multiple on estimated 2006 earnings. This company is one of the few that should prosper under either regime, as Kerry is expected at least to maintain the military spending on which Precisions customers depend. Shares tend to trade directly in line with Boeing, with a kicker for being a much smaller company with a lower share count.
On the financial side of the ledger, StanCorp Financial (SFG, news, msgs), a company that sounds like a made-up Laurel and Hardy comedy outfit, has done great through the Bush years by expanding from its life insurance roots to offer asset management, dental insurance and mortgages. Asset managers are expected to do better under a second Bush term as his team has proposed to vastly expand accounts qualified for IRAs as well to partially privatize Social Security -- expanding the amount of money under management. Likewise, insurers should do well if the Bush team were to follow through with attempts to push tort-reform through Congress, a move that could reduce the jury awards that insurers pay out. StanCorp shares are up 200% since January 2000, and show little sign of slowing. Theyre even cheap, trading at 11 times estimated 2004 earnings that are growing about 13%, which makes them doubly interesting in the event that Bushs bid strengthens.
Finally we come now to the basic materials manufacturers -- Pope & Talbot (POP, news, msgs), which makes pulp and wood products and employs 2,200; Schnitzer Steel (SCHN, news, msgs), which is primarily a metal recycler but also operates a self-service used auto parts business and employs about 1,500; and Oregon Steel Mills (OS, news, msgs), which operates two steel mills and nine processing plants across the West, and employs around 1,500. These all have done fairly well under Bush, with Schnitzer the biggest winner with a gain of 440%; Oregon Steel second, up 100%; and Pope with an unspectacular but steady gain of 30%. But they are all still cheap, and a decent value. (Over the same period, the S&P 500 ($INX) is down 23% and the Nasdaq Composite ($COMPX) is down 55%.)
Demand from China is the leading driver of these solid returns, but the Bush Administration has helped with a relatively unrestrictive regulatory stance and a lifting of tariffs -- and would help in the future by attempting to push through Congress legislation aimed at reducing these companies exposure to asbestos litigation. Count on the steels to trade primarily in line with the demand of their commodity product, but they should trail off a bit in the event that Kerrys chances of lighting the national Christmas tree in 2005 improve.
Oregon's top stocks
Here are the top 9 stocks in Oregon according to the MSN StockScouter rating system, and my view of whether they would benefit more under Bush or Kerry. The candidate who can persuade this state that he can turn around its unemployment rate, largely by improving the fortunes of the technology industry, may well reap victory here and across the country.
| MSN StockScouters top 9 Oregon stocks | | Company Name | Mkt. cap | Industry | 10/1 Price | % gain YTD | Scouter rating | Candidate | | Greenbrier Cos. (GBX, news, msgs) | $370 million | Railroads | 25.19 | 50.4 | 10 | Bush | | Blount Intl (BLT, news, msgs) | $422 million | Housewares | 13.64 | 73.3 | 9 | Kerry | | Pacific Continental (PCBK, news, msgs) | $128 million | Banks | 18.74 | 17.9 | 9 | Kerry | | Tektronix (TEK, news, msgs) | $2.2 billion | Instruments | 33.4 | 5.7 | 9 | Kerry | | Columbia Sportswear (COLM, news, msgs) | $2.2 billion | Apparel | 54.45 | -0.1 | 9 | Bush | | FEI (FEIC, news, msgs) | $691 million | Electronics | 20.8 | -7.6 | 9 | Kerry | | Nike (NKE, news, msgs) | $20.9 billion | Apparel | 79.88 | 16.7 | 8 | Bush | | StanCorp Financial (SFG, news, msgs) | $2 billion | Insurance | 72 | 14.5 | 8 | Bush | | Umpqua Holdings (UMPQ, news, msgs) | $1 billion | Banks | 23 | 10.6 | 8 | Kerry |
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Fine Print
University of Oregon economist Phil Romero offered this joke at the expense of his profession: Three economists were out shooting pheasant. One shot wide to the left, the second shot wide to the right and the third cried, Yea, we hit it! . . . To learn more about the Kerry-Edwards campaigns economic platform, visit http://www.johnkerry.com/issues/economy/. . . . To learn more about the Bush-Cheney economic program, visit http://www.georgewbush.com/economy/. . . . Nike has got to be the most innovative marketing engine on the planet. Check out its Web site, where you can order a personalized shoe, complete with your own color scheme and name.
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 jon.markman@gmail.com; put COMMENT in the subject line. At the time of publication, he held no positions in the companies mentioned.
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