Added some YGE calls around 15
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Presidential Portfolio Moves
Jim Oberweis, The Oberweis Report 09.03.08, 12:40 PM ET
We've got a little plan to help the country: Let's take our presidential candidates public.
We are not suggesting that John McCain or Barack Obama speak their minds--that would be political suicide! Rather, let's equitize them.
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Just think about how cool it would be to sell shares in Obama Inc. and McCain Inc. Investment bankers would love it! The bankers' lies and promises would differ little from their normal routine, but the lawyers would be busy for months. Can you imagine a prospectus that tried to list all the "risk factors" for these guys?
We can envision Obama's prospectus already, "While our corporate philosophy remains ‘Yes, we can,' we can make no assurances that, indeed, we can. Our business plan has not yet been formalized, and our chief executive has limited operating experience."
McCain's would also raise a brow, "Our chief executive has promised not to raise additional capital. Given our current negative operating cash flow, we can make no assurances that our capital will be sufficient to fund our existing operations."
Despite these and other risks, nobody pays attention to lawyers, and we still think these might be two of the hottest offerings of the year (which is not saying much). Once the road show is underway, we suspect most people will want a little slice of Obama Inc. and that McCain Inc. would be a value stock. Not loved by many, and definitely not sexy, he could still turn out to be the winner.
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On the other hand, when Obama goes public, he'd be a high-octane growth stock, full of glamor and promise but frothy amid lofty expectations. Alternatively, the bankers might float Obama as a SPAC. That is, as a "special purpose acquisition corporation"--those companies set up with no specific purpose but are flush with cash to take advantage of special situations. The trouble with SPACs, of course, is that they typically are empty on specifics, and we normally avoid them.
Irrespective of your political leanings, there is something in this deal for everyone. The proceeds from the Obama and McCain offerings could be used to pay down the deficit, modernize infrastructure or buy a couple of beers.
Kidding aside, the market impact of the November elections is a hard one to reckon. Obama's rhetoric sure sounds bad for stocks and rich people in general, but then again, he might be kidding, at least partially.
Even a mediocre economist (is there any other sort?) recognizes that raising taxes disproportionately on those most likely to invest, paired with sharply higher taxes on capital gains on those investments, tends to discourage the people with the money from investing it. More to the point, barriers to trade tend to--shockingly--create less trade and thereby slow economic growth. But with slogans like "tax the rich" and "keep jobs in America," few politicians can resist the temptation to pitch policies that win votes but lose money. Let's hope he knows better when it comes to enacting real legislation.
In reality, we expect that neither Obama nor McCain will end up as idealistic as they are proposing today. Obama has already tempered his position on capital gains, hinting he would target a 20% maximum rate, not the 28% feared by many. And as for McCain's promise not to raise taxes with big bills to pay and a Democratic Congress, we are skeptical that he will keep it. In short, taxes are going up, just maybe faster under an Obama administration.
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Energy is an area clearly vulnerable to legislative change. Normally our advisory letter focuses on tiny companies, but the changing landscape merits a mention of the likely beneficiaries, irrespective of market cap.
While Obama has promised to tax "windfall" oil profits, both candidates have been supportive of promoting natural gas over oil, given our country's large natural gas reserves. GMX Resources, one of our favorite U.S. natural gas exploration and production companies, will benefit if demand for natural gas increases. GMX has acreage in the Haynesville shale, a hot region in Louisiana and east Texas touted as the next Barnett shale.
Willbros Group, a specialty construction and engineering firm for the oil and gas industry, is experiencing booming business as demand for pipelines accelerates to take natural gas from the wellhead to the end consumer.
An indirect winner may be Fuel Systems Solutions, which makes conversion kits that allow cars to run on natural gas or propane rather than gasoline. Note that Fuel Systems has had a big run, and we wouldn't be buyers of shares at current levels.
Both candidates seem to agree that we need to fuel up environmentally friendly alternatives to foreign oil, including solar. Chinese-based solar stocks, which have been pounded in 2008 amid fears that Spain and Germany will reduce solar subsidies, could quickly become market darlings again if the next president sweetens solar economics in the U.S. via subsidies or tax incentives. Our favorites are Suntech Power and Yingli Green Energy. Suntech is larger and better known, but Yingli is growing at 70% and trades for just nine times 2009 estimated earnings.
Arizona-based First Solar and Michigan-based Energy Conversion Devices are proponents of thin-film based solar technologies.
Wind power is another alternative popular with the voters and touted by both candidates. Danish-based wind turbine producer Vestas and Colorado-based Woodward Governor are worthy of consideration.
Lastly, McCain has been a strong advocate for nuclear power. If McCain wins, GSE Systems, which offers simulations and monitoring for nuclear power plants, should be a winner.
All this said, it is hard to glean investment insight during the campaign itself because so much of today's rhetoric will never become law. While agendas like higher capital gains taxes tend to be interpreted negatively, there are many variables that drive the market, not the least important of which are equity valuations, which by nearly every metric appear quite low.
In fantasy-land, we could buy both the high-octane growth stock Obama Inc. and the value stock McCain Inc. for our portfolio. In reality, we must choose only one this November. Please get out and vote.
Jim Oberweis, CFA, is president of Lisle, Ill., based Oberweis Asset Management and editor of the Oberweis Report. Click here for a 30-day free trial subscription. |
