The Obama Portfolio

Americans were generally moved and excited by the election of Barack Obama to the White House. But Wall Street has greeted his election -- and the expanded Democratic majority in Congress -- with a Bronx Cheer.

In the eight trading sessions between Election Day and November 14, the market sank six times (including four single-day tumbles of at least 300 points in the Dow Jones industrials). Whatever the market's initial response, investors will watch the new president closely for clues that could determine which industries are most likely to prosper in an Obama administration.

Of course, you shouldn't base your investment decisions entirely on politics. History shows there are no guarantees when a new president takes the reins. When the Clinton-Gore ticket won in 1992, environmental mutual funds came into vogue as investors bet that Vice President Gore's interest in matters green would boost companies involved in alternative energy and cleaning up pollution.

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In the end, however, the environment moved to the back burner, and green stocks failed to gain traction. "You can't ever count on just one factor, like who is president or who controls Congress," says Kimberly Sterling, president and shareholder at Resource Consulting Group, a financial planning firm.

With those caveats in mind, there are a few industries that could get an Obama bump. The key is to find sectors that are being bolstered by other forces as well.

Renewable energy. President-Elect Obama wants the nation to derive 10% of its electricity from renewable energy sources by 2012, up from 2% today. That comes on top of the global push for green power, making wind and solar power companies a good bet.

In such an environment, Vestas Wind Systems (symbol VWSYF), the world's leading supplier of wind turbines, stands to benefit. At their November 14 closing price of $42.15, Vestas's American depository receipts, which trade on the pink sheets, were down 61% in 2008 because of fears that the credit crunch would stunt sales growth.

But profits at the Danish company, which holds 23% of the global market for wind turbines, are likely to rise in 2009 as government incentives in the U.S., Europe, and China boost demand for the devices. "Vestas is the best pure play on wind," says Andy Laperriere, a managing director at ISI Group, a New York City brokerage firm that specializes in economic research.

The outlook is also sunny for First Solar (FSLR), which makes solar panels. The rapidly growing firm, which has the least-expensive manufacturing cost per watt in the industry, has consistently notched up impressive sales and earnings growth. Analysts expect sales, just $48 million in 2005, to reach $1.2 billion this year and nearly $2.1 billion in 2009.

The stock, 44% of which is owned by the Walton family of Wal-Mart fame, closed at $116.78 on November 14, down 63% from a peak of $317 in May. It now trades at 16 times estimated 2009 earnings of $7.38 per share, above the market, but only one-third of the expected earnings-growth rate of 53% over the next three to five years. And, unlike the experience of nearly every other publicly traded company on the planet, First Solar has seen analysts boost '09 profit estimates over the past month.

If you'd rather not choose individual alternative energy stocks, you could instead invest in an exchange-traded fund. First Trust Global Wind Energy (FAN) holds such wind companies as Vestas, and Claymore/MAC Global Solar Energy (TAN) owns First Solar, among others.

Health care. Choosing a way to cash in on the likely changes in the nation's complex health-care system is a little trickier. Some analysts are concerned that Obama and a lopsidedly Democratic Congress will enact a national health-insurance program that will force drug prices down. But if you assume that more people will have access to medical care, you can argue that demand for prescription drugs would grow.

One drugmaker worth considering is Novartis (NVS). Even if a new national health-care plan puts pressure on prescription drug prices, the Swiss company stands to benefit because it has the world's second largest generic drug operation. Value Line analysts expect Novartis's generic division to get even bigger as it snaps up rivals.

Also on the plus side: a strong dollar, which should boost profits on sales in the U.S., and a cheap stock. At $48.94, it trades at 12 times estimated 2009 earnings of $3.96 per share.

For broader exposure, consider iShares S&P Global Healthcare (IXJ). The ETF, which holds such drug giants as GlaxoSmithKline (GSK), Novartis and Pfizer (PFE), is a favorite of Scott Burns, Morningstar's director of ETF analysis. The fund provides access to the pipelines of the world's top drug makers, he says. And the stocks it owns should hold up if global economies remain in a funk. "Health care does well, regardless of economic conditions," Burns says.

Infrastructure. With the economy in recession, the new administration will almost certainly want to boost infrastructure spending in an effort to create jobs.

That means companies such as URS Corp. (URS), a construction and engineering concern, could get a lift. URS, which derives more than 50% of its revenue from government funding, has a record $18 billion backlog and just raised its 2008 profit forecast to a range of $215 million to $223 million, or $2.58 to $2.67 per share. With orders from Uncle Sam still coming in, the outlook for 2009 is promising. At a price of $27.45, the stock trades at nine times estimated 2009 earnings of $2.99 per share.

Another potential beneficiary of more spending for roads and bridges is Granite Construction (GVA), a contractor and producer of construction materials that gets 70% of its revenue from public projects. Morningstar analyst Patricia Oey says the company is in a good position because its construction businesses are located in the West and the Southwest, where a growing population is likely to spur infrastructure investment. At $31.65, the stock is down only 12% year-to-date (compared with a 41% decline for Standard & Poor's 500-stock index). It trades at 13 times estimated 2009 earnings of $2.39 per share.