BofA: These Stocks Are Winners If You Expect Romney To Become President

Mitt Romney

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Some analysts expect that if Mitt Romney were to win the 2012 presidential elections in the United States, investors could expect stocks to receive a bit of a lift – especially relative to if President Obama were to be re-elected for a second term.BofA Merrill Lynch equity analysts from across a spectrum of industries put together a report called Election 2012 taking a look at the sectors and individual stocks that could benefit most if Mitt Romney secures a second term at the polls in November.

Many stocks across various sectors would benefit from a political environment characterised by decreased regulation that a Republican victory would create. However, there are many specific policy risks as well that could affect various stocks negatively if Obama is re-elected.

Managed Care

Top Stocks: Humana (HUM), WellPoint (WLP), Coventry Health (CVH)

Rationale: If Romney were to win the election and Republicans were to take control of Congress, they would get to work on repealing President Obama's health care reform program.

One of the things they would eliminate first, according to BofA analyst Kevin Fischbeck, is incentives for moving health insurance enrollment to exchanges. This would prevent the margin compression for health insurance companies currently providing Medicare. Fischbeck says that 'as a result, there could be a full turn in multiple expansion' in Medicare stocks.


Source: BofA Merrill Lynch

Hospitals

Top Stocks: DaVita (DVA)

Rationale: A Romney win would mostly be negative for hospital stocks, according to Fischbeck, because Republicans are more inclined to balance the budget by cutting spending, which would adversely impact hospitals.

However, Fischbeck writes that 'A company such as DVA, which had nothing to gain from Reform and is well positioned to offset rate cuts, might feel less of an impact under this scenario.'

Source: BofA Merrill Lynch

Medical Supplies and Devices

Top Stocks: Stryker Corp (SYK), Medtronic (MDT), Zimmer (ZMH), St Jude Medical (STJ), Covidien (COV)

Rationale: BofA analyst Bob Hopkins explains why Medical Supplies and Devices stocks would benefit from a Romney victory:

It would be more likely to result in a more favourable FDA and the increased likelihood that the Medical Device Tax would be repealed or modified. Large cap medical device earnings power could increase by 3-5%, depending on the company, for 2013 and beyond if the tax was to be repealed.

Source: BofA Merrill Lynch

defence

Top Stocks: Boeing (BA), General Dynamics (GD), Raytheon (RTN)

Rationale: Republicans are typically more favourable toward defence spending than Democrats. However, BofA analyst Ronald Epstein says that he expects either president to cut defence spending further 'due to the US government's austere fiscal reality.'

According to Epstein though, defence stocks could still pop if Romney and the Republicans sweep the elections.

Source: BofA Merrill Lynch

Transportation

Top Stocks: CSX Corp (CSX), CP Rail (CP), Knight Transportation (KNX)

Rationale: According to BofA analyst Ken Hoexter, fear of regulation is the key undercurrent in the transportation sector. Regulation has increased in the trucking industry under president Obama, and rail regulation almost went through in Congress until the 2010 elections that shifted control of the House to Republicans.

Hoexter expects a Romney win would signal a softening on regulation in both the rail and trucking industries.

Source: BofA Merrill Lynch

Education

Top Stocks: Apollo Group (APOL), Grand Canyon Education (LOPE)

Rationale: Similar to the transportation sector, BofA analyst Sara Gubins says that for-profit education has faced increasing regulation under the Obama presidency. The Higher Education Act is due to be reauthorized at the beginning of 2013, and Gubins writes that 'the majority of important higher education legislative changes occur during reauthorization.'

Gubins says that because Republicans are generally for less regulation in the sector, education stocks should benefit from a Romney win. However, they could face headwinds if federal spending for education is cut under a Republican regime.

Source: BofA Merrill Lynch

Telecoms

Top Stocks: AT&T (T), Verizon (VZ), Windstream Communications (WIN), CenturyLink (CTL)

Rationale: BofA analyst David Barden says that the outcome of the election will be important for many high-yielding telecoms stocks because of potential changes to the dividend tax code.

Barden writes that 'an Obama victory increases the likelihood of an increase in the dividend tax rate, which would be a net negative for yield stocks. Conversely, a Romney victory makes an increase in the dividend tax rate less likely, which would be a net positive for yield stocks.'

Source: BofA Merrill Lynch

Packaging and Paper/Forest

Top Stocks: International Paper Co (IP), Ball Corp (BLL)

Rationale: This sector is another story of benefiting from decreased regulation under a Romney presidency. BofA analyst George Staphos writes that 'many of the paper and paperboard companies are facing increased environmentally-driven capital spending in the years ahead due to so-called Boiler MACT regulations,' and a Romney victory could help ease the pressure on these companies.

Source: BofA Merrill Lynch

Technology

Top Stocks: Oracle (ORCL), Cisco Systems (CSCO), Apple (AAPL), Google (GOOG)

Rationale: BofA tech analysts say a Romney victory could favour tech stocks by 1) tax-free or low-tax overseas cash repatriation; 2) an extension of bonus accelerated depreciation writeoffs; and 3) making the R&D tax credit permanent.

On the second point, the analysts note that the bonus depreciation measures for businesses who invest in new equipment is set to expire at the end of 2012. BofA expects that there would be a higher chance that this gets extended under a Republican government.

Source: BofA Merrill Lynch

Now check out the stocks that would benefit if Obama gets re-elected >

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