Here Are a Few Sectors and Three Dozen Stocks That Strategists Think Will Climb on a Blue Wave - Barron's

CVS Health is among the health-care stocks that could benefit from a Democratic sweep in November’s elections.

Bryan Bedder/Getty Images for CVS Pharmacy

With political tides increasingly shifting toward a so-called blue wave, now is the time to figure out how to ride it.

Strategists in recent days have been gaming out market implications of a Democratic sweep in November’s elections with the coronavirus pandemic, social unrest, and a scarred economy tipping sentiment toward Democrats. Former Vice President Joe Biden has widened his lead over President Donald Trump in recent polling, and control of the Senate looks within Democrats’ reach.

Here is what two sets of analysts, one at J.P. Morgan and the other at Wolfe Research, have to say.

While the consensus view is that a Democratic victory in November will be a negative for stocks, a team of equity strategists at J.P. Morgan, led by Dubravko Lakos-Bujas, says they see that outcome as neutral to slightly positive.

Behind that view: History suggests that challengers to an incumbent typically campaign at an extreme only to move to the center post-election, and Biden’s proposed policy priorities were introduced pre-pandemic when the economy was still healthy. In other words, Biden’s more extreme policy pronouncements aren’t likely to bear out should he win.

Given the current economic weakness, business recovery and job growth are likely to be prioritized over policies that could dampen economic growth, Lakos-Bujas says—meaning that the degree of a potential corporate tax reversal (Trump led a cut in corporate taxes to 21% from 35%) could ultimately be lower than the 28% Biden has floated.

While the second-order impact of a partial reversal would be significant—J.P. Morgan estimates reductions of about $50 billion and $100 billion, respectively, in capital expenditures and stock buybacks—the analysts say other policy proposals including infrastructure spending, softer tariff rhetoric, and higher wages should be net positive for S&P 500 earnings and largely offset any corporate tax headwind.

When it comes to a potential infrastructure bill, analysts at Wolfe Research say they expect a Democratic sweep to result in a package of at least $1.5 trillion. That team, led by Chris Senyek, anticipates an emphasis on clean energy and other environmentally friendly initiatives.

On the idea that Democrats would be much more positive on trade policy than Republicans have been under the Trump administration, Senyek says U.S. companies paying heavy tariffs and U.S. exporters with significant exposure to China would be some of the biggest initial winners.

Raising the federal minimum wage, as many Democrats have backed, should be neutral to positive for S&P 500 companies, Lakos-Bujas says, as higher aggregate demand would more than offset margin pressure--especially for bigger companies with higher pricing power.

Then there’s health care. Senyek says that even before the pandemic’s onset, health care was the most important issue heading into the election. Investors should consider, he says, that Biden would build up the Affordable Care Act (he came out against Medicare-for-All, favored by Democratic rivals Bernie Sanders and Elizabeth Warren) and has suggested he could create a public option that would compete with private plans. Within the health-care sector, Senyek says hospitals and volume-based providers would be winners if the Democrats sweep.

Digging into these broader ideas of what wins and what loses under a Biden administration and a House and Senate that are under Democratic control, J.P. Morgan highlights these baskets of potential outperformers.

Green Technology

Tesla (ticker: TSLA)

NextEra Energy (NEE)

Nikola (NKLA)

SolarEdge Technologies (SEDG)

Cree (CREE)

Enphase Energy (ENPH)

First Solar (FSLR)

TerraForm Power (TERP)

Ormat Technologies (ORA)

Sunrun (RUN)

Sunnova Energy International (NOVA)

Infrastructure

Caterpillar (CAT)

Jacobs Engineering (J)

United Rentals (URI)

Aecom (ACM)

Lincoln Electric Holdings (LECO)

MasTec (MTZ)

Valmont Industries (VMI)

Terex (TEX)

Granite Construction (GVA)

De-Escalation of U.S.-China Trade War

Procter & Gamble (PG)

Thermo Fisher Scientific (TMO)

Danaher (DHR)

Nike (NKE)

Boeing (BA)

3M (MMM)

DuPont de Nemours (DD)

Cummins (CMI)

Otis Worldwide (OTIS)

Stanley Black & Decker (SWK)

Health Care

Johnson & Johnson (JNJ)

CVS Health (CVS)

Humana (HUM)

Centene (CNC)

McKesson (MCK)

AmerisourceBergen (ABC)

Cardinal Health (CAH)

Teva Pharmaceuticals (TEVA)

Mylan (MYL)

Write to Lisa Beilfuss at lisa.beilfuss@barrons.com

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