McCain vs. Obama -- What to Add to Your Portfolio Depending on Who Becomes Our Next President

Published: October 27, 2008

For several days in late September and early October, global stock and bond markets watched Washington with bated breath, eagerly searching for clues as to the fate of the proposed $700 billion plan to stabilize credit markets. It certainly seemed the fate of Wall Street, Main Street and Congress had never been more closely connected.

But the truth is that politics and business are always inextricably linked. The total U.S. federal budget last year topped $2.77 trillion, roughly 20% of U.S. gross domestic product (GDP). And last year there was no $700 billion economic stabilization plan on the books; the U.S. Treasury believes it could buy as much as $50 billion worth of troubled assets from banks each month as part of this plan.

Simply put, that's a lot of cash. No government body or president has unfettered control over how all that money is spent; however, the presidential administration certainly sets the tone, helping to direct federal spending in a way that promotes policy goals. In addition, the president often helps to guide the tax and spending debate.

And that influence goes far beyond federal spending and taxation. The president directly appoints or nominates key government officials and regulators, such as the Treasury Secretary, the Chairman of the Securities and Exchange Commission (SEC) and even the Chairman of the Federal Reserve.

In just a little more than a week, Americans will select a new president. The candidates of both major political parties, Republican John McCain and Democrat Barack Obama, have promised change. Both candidates have also announced a long list of platforms, campaign promises and policy goals. While these proposals aren't always diametrically opposed, there are some key differences that will likely have a profound impact on your portfolio.

Here's a rundown of three major policy areas likely to be influenced by the upcoming election. Within each policy focus, let's take a closer look at the stance of each political candidate -- and how each might impact your portfolio.

Healthcare
Healthcare and health insurance are clearly major issues for this election cycle, and both candidates have proposed some aggressive health reforms. There are some similarities between both plans; for example, both Obama and McCain promote the use of cheaper generic drugs and have talked about allowing re-importation of prescription drugs from overseas. But there are also some key differences.

Under Obama's plan, the government would create a new national health insurance program, allowing individuals to choose between that plan and their existing private insurance. Employers that do not offer health coverage would have to pay some sort of premium towards the national health plan.

Obama claims that he will save about $2,500 per family on average by cutting waste in the system and moving some high-risk patients from private plans to the national system.

Under McCain's plan, each individual would receive a $2,500 tax credit or a $5,000 credit per family. This cash could be used to purchase a private plan or to continue with current coverage. If families opt for cheaper coverage -- such as a high-deductible plan -- the balance of that credit could be used as a contribution to a health savings account (HSA) that could accumulate on a tax-favored basis and be used to cover medical costs or insurance premiums.

Obviously, the group that stands the most to gain or lose from these two plans is the insurance industry. The McCain plan is largely regarded as more favorable for private health insurance firms since there would be no nationalization of healthcare. In addition, McCain's proposed tax credit might well make health insurance affordable for a larger number of consumers.

Under the Obama plan public and private plans would compete, and it is possible that a large number of Americans would opt for a national health plan rather than private coverage. This would directly take revenues out of insurers' pockets. The Obama plan would also require insurers to cover certain high-risk patients with pre-existing conditions -- these patients could prove unprofitable for the insurers.

Energy
There are some similarities between the Obama and McCain energy plans. For example, both support some form of limitation on carbon dioxide emissions and have expressed support for alternative energy.

However, many believe that an Obama administration would be more favorable to alternative energy companies. Obama's "New Energy for America Plan" aims to put 1 million plug-in hybrid cars on the road by 2015 and targets for 10% of U.S. electricity to come from renewable sources by 2012 and 25% by 2025.

Obama's plan also promotes a national cap-and-trade plan for carbon dioxide that would allow companies that pollute less than a targeted amount to sell credits to heavier polluters. The goal: an 80% reduction in greenhouse gas emissions by 2050.

Finally, Obama proposes investing $150 billion over 10 years to promote a clean energy future. This primarily would involve funds to private companies involved in alternative and clean energy technologies.

A McCain administration would, in contrast, likely be more favorable for the nuclear power industry. McCain is looking to build 45 new nuclear plants by 2030 with an ultimate goal of building 100 new reactors -- essentially a doubling of current U.S. nuclear capacity. That would represent a major shift in energy policy as these would be the first new reactors constructed in the U.S. since the 1970s.

A McCain administration would also likely be more disposed to opening up drilling in parts of the U.S. currently closed to producers. This would likely include areas of the Alaska National Wildlife Refuge (ANWR). And while the moratorium on offshore drilling off parts of the U.S. coasts recently expired, a McCain administration would be less likely to attempt to re-impose those restrictions -- heavily benefiting drilling companies and offshore oilfield servicers.

Homeland Security and Defense
Both McCain and Obama have pledged to keep America secure against terrorist attacks and make efforts to modernize the military. However, McCain is seen as more friendly to the defense industry than Obama. This is largely due to the fact that defense spending historically tends to grow faster under Republican administrations than Democratic ones.

In addition, McCain was a prominent supporter of the "surge" in troop force in Iraq and tends to favor maintaining more troop strength there to maintain security. Obama supports a "phased withdrawal," which might mean a faster withdrawal of troops from the country. Who wins the election will likely affect the companies that provide supplies for the armed forces, such as body-armor manufacturer Ceradyne (Nasdaq: CRDN).

And as we said, both candidates have emphasized the importance of modernizing the military for the sorts of conflicts we are most likely to face, as well as further strengthening protection from terrorist attacks. This is likely to include heavy spending on high-tech surveillance and communication equipment, such as the kind made by L-3 (NYSE: LLL). In fact, as we told readers in April, the company has "positioned itself at the forefront of the military's modernization campaign."

With these points in mind, StreetAuthority Market Advisor editor Paul Tracy and his staff highlight two companies that are likely to be influenced by the upcoming election. One idea would likely be positively impacted by a McCain presidency. While the other would likely benefit should Obama win the White House. To learn more about these politically inspired investment ideas and to learn more about Market Advisor, please visit this link.

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