Model portfolios hedge their ballot bets

September 20, 1992|By Ian Johnson | Ian Johnson,Sources: Nomura Research, Salomon Brothers, Shearson Lehman Brothers, T. Rowe Price, Legg Mason.New York Bureau

New York -- Own stock in Caterpillar Inc.? Then break out that "Clinton for President" bumper sticker.

Heavy into a health care mutual fund? Put on that "Re-elect Bush" pin.

With the presidential election six weeks away, Wall Street is engaged in an avalanche of analysis and speculation over how to cope with a win by Bill Clinton or the re-election of President Bush.

Stock market analysts are reluctant to predict the performance of either man over the next four years -- they trust campaign promises as little as other voters do. But as the race remains close, some are beginning to forecast market winners and losers under a Bush or Clinton administration.

"The market is only now taking a look at what the election means. Up until now it hasn't seriously considered a Clinton victory," said Ryan Krueger, an analyst with Nomura Research Monthly and author of a study on the effects of the campaign.

Analysts, who believe the market will become increasingly volatile as Election Day nears, tend to hope for the predictability of a Bush win. Still, some are upset that the president has focused his campaign around the theme of family values rather than economic recovery.

"In my opinion, the manner in which the Bush campaign has developed this 'theme' offers considerable proof . . . that a turnip has been hired to run the entire Bush re-election effort," Prudential Securities Mark L. Melcher wrote in Strategy Weekly earlier this month.

Politics aside, what would a model Clinton portfolio include? Companies in infrastructure development, high technology and job training, analysts say. It should exclude pharmaceutical and health insurance companies, defense contractors and Sallie Mae student loan stocks.

If Mr. Bush were re-elected, there would be fewer implications because he promises less change and investors already are geared toward his policies, analysts say. In general, a Bush portfolio would include health industry companies, defense contractors and major international companies that would benefit from free trade, such as food and beverage producers. It should avoid tax-exempt bonds and environmental companies.

Thomas D. Gallagher, chief political analyst for Shearson Lehman Brothers, says Mr. Clinton has promised more investment in infrastructure through a "Rebuild America Fund" that could include new high-speed rail links. This could allow industrial companies such as Caterpillar, Granite Construction and USX Corp.-U.S. Steel Group to expand domestic operations. Mean- while, job training proposals should be a good opportunity for companies that specialize in training and textbook publishing, such as National Education Corp.

Less specific are Mr. Clinton's calls for an industrial policy. Richard Cripps, director of equity marketing at Baltimore's Legg Mason Wood Walker Inc., says this could mean more opportunity for high-tech firms such as Electronic Data Systems and General Electric Co. Other potential winners are companies heavily involved in subsidized research, such as Cray Research and some defense contractors that otherwise would be a sell under Mr. Clinton.

One potential loser is Sallie Mae, the company that buys, sells and services student loans. Mr. Clinton has proposed replacing it with another system that would allow some loans to be repaid through national service.

Another sell under a Clinton administration: health and pharmaceutical companies. Mr. Clinton has proposed controlling high health care costs through a national health board, implying to analysts that most health care companies would make less money. This has become one of the most controversial vTC predictions because the nation's aging population was thought to make health care investments a sure-fire bet.

"Health care stocks are likely to be choppy performers until the outlook for health care reform comes into sharper focus. We believe that a Clinton presidency would cast a cloud of concern over the industry," argue Salomon Brothers analysts.

Mr. Bush, by contrast, proposes controlling costs through tax incentives, which analysts view as more industry-friendly. Other winners under a Bush administration are multinational companies. The president is seen as less protectionist than his Democratic rival, who has not taken a clear position on the free trade agreement among the United States, Canada and Mexico.

None of the analysts knows how Mr. Bush will find the money for his proposed tax cuts. But if they become law, wealthy Americans would not have to fear taxes as much and wouldn't need tax havens such as tax-free municipal and state bonds, Mr. Gallagher said.

A Bush administration also would feel less pressure to clean up the environment than the Clinton team, which includes environmentalist Al Gore as vice president. So if Mr. Bush is re-elected, companies such as Waste Management and Browning-Ferris would not have as many opportunities to grow.

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