MoneyScope Talk: Investing in a New Regime

Wow! Can you believe this? We thought we’d wake up and have a new President, but no. Instead we have … a toss-up!

You know Wall street is a place that likes to lean on history. As in: Here’s what happened in the crash of 1987, or the Persian Gulf War, or Ronald Reagan’s victory in 1980. But this time, nothing. No one has ever seen this before, uncharted waters! So in the short run, not good for Wall Street. I’ve never heard of a “confusion rally.” Or an uncertainty rally. Hard to know how Wall Street will react, but I’ll be a monkey’s uncle if stocks go to the moon over the next day or so. As they say, STAY TUNED

Perhaps even more than most Americans, Wall Streeters were following this election campaign very carefully. Although this has been a contest between two more or less centrist candidates, there are real distinctions between George W. Bush and Al Gore, especially with regard to where they come down on financial issues.

First off, let’s be clear that Wall Street won’t be unhappy with either candidate. Second, it’s hard to see how either will really move the market one way or another, especially over the long haul.

What’s important to recognize is that the president probably matters less today in terms of the economy than he did 20 years ago. Alan Greenspan, the Federal Reserve chief, arguably wields more power than the commander in chief in this arena.

Another point: government spending as a percentage of GDP is much less than it used to be. For instance, the technology sector today is much bigger and more important than, say, defense spending, which is completely dependent on government outlays.

Having said that, however, the president-elect’s policies will certainly have a significant and direct impact on various sectors of the nation’s economy and your investment portfolio. Let’s check it out.

A Bush Presidency

It’s true that CEOs and Wall Street heavy hitters prefer George W. That’s because while Gore may be business friendly (which after all is why Ralph Nader ran, right?), George W. is more business friendly.

Another point, Bush will be much more reluctant to block big mergers based on antitrust objections. So look for more big deals to go down and get approved (i.e. AOL and Time Warner.)

Here then are some sectors and specific stocks which should make out in a new Bush administration:

Oil and Gas. You can expect that the oil and natural gas businesses will be in good stead. Remember, both Bush and his running mate Dick Cheney are oil and gas guys.

Stock Picks: ExxonMobil (the big Kahuna) and Halliburton (at the very least, it’s hard to see Cheney’s alma mater getting hurt in a Bush administration.

Defense. No question that while Gore wouldn’t have seriously cut back military spending — it’s pretty bare bones right now, relatively speaking — George W. will spend billions more. That means more dollars flowing into defense contractors and aerospace companies.

Stock Picks: Northrop Grumman, Lockheed Martin, Raytheon, and Boeing.

Tobacco. Say goodbye to going after big smoke. Or, as the punsters might put it, a cloud will likely get lifted from over this business.

Stock Picks: Philip Morris, which by the way, is already up over 50 percent this year; RJR and UST.

Microsoft. The biggest company in the world by market value, could get a lot bigger if George W. has his way. Why? Well, the whole antitrust case could well be kaput. While George W. hasn’t said so directly (he’s gone on the record as being unwilling to comment on ongoing cases), he has smiled and said something to the effect of, he really believes in letting markets sort things out.

Stock Picks: Buy MSFT.

Telcos. Remember, Texas is home to one of the last regional Bell companies. Bush may favor these guys over the long distance carriers. The Bells want relief form the 1996 Telecom Act which inhibits them from entering the data business in local markets.

Stock Picks: Buy SBC, the pride of San Antonio. And Verizon.

A Gore Presidency

The old rules about a Republican being good for business, a Democrat, bad, have been thrown out the window. The new, business-friendly Democratic Party has shown during the past eight years of the Clinton Administration that it, too, knows how to preside over an expanding economy — nay boom time — as well as any gaggle of Republicans.

So, Al Gore in no way scares Wall Street. He may, for instance, be less intent on blocking big mergers than President Clinton, who was keen on this policy area.

Here then are some sectors and specific stocks which should make out in the new administration:

Pharmaceuticals. This is contrarian, so hang in there for a second. Conventional wisdom has it that if Gore wins, drug stocks will tank because Gore has pledged to beat up the drug companies. That, as far as it goes, is true. But the bottom line is, Gore will fail and that will be good for investors in these stocks, particularly if you buy after they get bashed. Same thing happened with President Clinton. He promised to get after the drug companies, the stocks took a dive after his election and stayed down. Then over a number of years, after it became clear that he wouldn’t be able to control pricing (and remember the Congress will likely be in Republican hands this time around), the stocks took off. Bottom line: Drug business is bigger than Al Gore.

Stock Picks: Merck, Pfizer, Bristol-Myers Squibb, Eli Lilly, the usual suspects.

Bonds. Al’s $500 billion in tax cuts over the next decade would be more prudent than George W.’s massive $1.3 trillion proposal. Plus, Gore promises to pay down the debt rapidly which would make way for sustainable, moderate growth, which the bond market loves.

Picks: US Treasuries.

Telcos. As the man who “invented” the Internet, Gore will likely push policies that provide broadband services to as many Americans as possible. So, long-distance companies, competitive local exchange carriers and satellite companies could do well.

Stock Picks: AT&T, Worldcom and Exodus Communications

Environmental clean up companies. I know, I know, not much of a stock group/investing play. But believe you me, these companies will be plenty busy with Enviro-Al in the White House.

Stock Picks: Tetra Tech, IT Group, Roy F. Weston, Ecology and Environment Inc., and Sevenson.

Alternative fuels. This is an even thinner market. Again the thinking here is that Al will give these guys a boost.

Stock Picks: Evergreen Solar, Fuel Cell Energy, H Power, Millennium Cell, Plug Power (a wild stock) and Syntroleum.

Pocketbook Issues

Losers in a Bush administration? Well, don’t look for environmental cleanup companies or those that are in the alternative fuels business to shine.

Losers in a Gore administration? Well, don’t look for oil stocks to necessarily shine.

What about other issues like taxes, interest rates, and inflation? These babies are even tougher to predict because changes here entail actions by the Federal Reserve — over which the president would have no real sway — or legislation which must go through Congress. Although Greenspan’s term isn’t over until 2004, some still suggest that Gore would increase government spending to such a degree that it would over-stimulate the economy.

George W. has proposed some rather sweeping tax cuts. If he’s able to get Congress to sign off on them, he also runs the risk of over-stimulating the economy.

The Fed chief will be watching like a hawk to see that economy doesn’t overheat. If it does, expect the Fed to raise interest rates — a negative for those looking to get a loan or a mortgage.

Anyway, go easy here. A lot of this is, shall we say, speculative!

Andrew E. Serwer is editor at large for Fortune magazine, where he originated and writes for the “Street Life” column. He’s also a regular commentator on National Public Radio’s nationally syndicated “Marketplace” program, has appeared on CNBC, CNNfn, Voice of America and PBS, and has published articles in TIME, Sports Illustrated and SLAM. For more, go to “Street Life” on Fortune.com.