Bush vs. Gore: The Winners and the Losers

That decisive day in early November when one of two men will be chosen to run the White House for the next four years may seem far off. But where Al Gore and George Bush stand on different issues should begin to play itself out in the U.S. stock market long before that.

In fact, it's the outcome of the next round of polls that investors will really want to watch. The candidate significantly ahead in the polls just after Labor Day has won every presidential election for the past 50 years. And, while recent polls show Gore with a slight lead, it often takes poll results a few weeks to settle following national conventions, which were held just last month.

"Historically, stocks begin to price in election outcomes after Labor Day, so investors will be looking at these polls pretty closely," said Andy Laperriere, associate managing director for market research firm International Strategy & Investment Group.

Charles Gabriel, political analyst for Prudential Securities, agreed.

"The conventional wisdom is that the public doesn't focus on elections until Labor Day anyway. I think we're just beginning to see the potential for swings in stocks based on what investor sentiment and business media see as those industries that will do better under Bush and Gore," said Gabriel.

A couple of weeks ago the market saw the first of such swings. A few lofty words from Al Gore in his nomination acceptance speech at the Democratic National Convention sent investors scrambling to unload drug stocks. Gore railed against "big business," shaking his finger hardest at pharmaceuticals and managed health care companies. The American Stock Exchange Pharmaceutical Index, which tracks pharmaceutical stocks, fell 2.1% the next day.

Meet the New Boss...

Meanwhile, unlike 1996, this is no "status quo" election. And a new president means new policies. Several of the candidates' legislative proposals could have a significant impact on different business sectors, and stocks. Most strategists agreed that a Gore lead and win would likely be hardest on drug, health care, energy and defense stocks, but a report by Gabriel outlines a list of Gore stocks and Bush stocks.

Bush Stocks
Company	Ticker	Friday Closing Price
Aerospace/Defense Electronics
General Dynamics	GD	$63.25
Lockheed Martin	LMT	29.94
Northrop Grumman	NOC	79.81
Energy
Baker Hughes	BHI	36.88
El Paso Energy	EPG	62.63
Nabors Industries	NBR	50.38
BP Amoco	BP	56.00
Financial Services
Charles Schwab	SCH	37.56
Nationwide Financial	NFS	38.00
Alliance Capital Management	AC	51.12
Associates First Capital	AFS	39.38
Household International	HI	52.31
Providian Financial	PVN	119.38
T.Rowe Price Associates	TROW	46.88
Goldman Sachs Group	GS	124.25
State Street	STT	122.56
Ambac Financial Group	ABK	67.5O
MBIA	MBI	67.38
SLM Holding	SLM	40.69
Forest Products
Georgia-Pacific Group	GP	27.31
Weyerhaueser Co.	WY	44.19
Health Care
Wellpoint Health Networks	WLP	83.13
UnitedHealth Group	UNH	90.50
Merck	MRK	67.50
Pfizer	PFE	40.00
Energy
Alliance Capital Management	AC	51.12
Technology
Microsoft	MSFT	69.31
Tobacco
Philip Morris	MO	29.44
Source: Prudential Securities

War on Drugs

It's hard to say whether health care and drug stocks will continue to suffer at the hands of the Gore campaign. As Gore has won voter support on the issue, Bush has jumped in to offer his own alternative. Bush recently claimed that by greatly increasing government spending in the sector, states would be able to negotiate significant discounts on drugs.

Still, Gore should be much harder for drug stocks to swallow. Gore has repeatedly criticized the drug industry for reaping massive profits from pricey prescription drugs at the expense of the elderly. And he has vociferously championed the generic drugmakers. That support could translate into patent policies that would allow those companies to bring copycat products to market more quickly. And that's bad news for established drugmakers like Pfizer(PFE), but good news for generic drugmakers like Abbott Laboratories(ABT). TheStreet.com wrote about the drug policies of both candidates in a separate story.

At least one strategist thinks investors aren't taking the Democrats' stand on health too seriously, following the Clinton administration's failure to follow through on health care reform.

"Once they have withstood the Hillary [Clinton] threat under the [Clinton] administration, investors will probably discount the Democrats' threats. ... These stocks have gone through similar threats before, so I don't think it's a big deal," said Michael Scarlatos, policy and government strategist at online market research firm IDEAglobal.com.

Trust Busters

If Gore continues to look like the White House winner, he could also put some pressure on the legally oppressed -- companies like Microsoft(MSFT) and tobacco stocks like Philip Morris(MO), which have become poster boys for big business.

Gore has continued to roll out his big-business bashing since his convention speech, and strategists expect him to extend what is seen by some as a vilification of the tobacco industry and other big business by the Clinton administration. He is also seen carrying out the government's current case against Microsoft.

But Bush could ease up on or let go of the government's lawsuit against the software Goliath, possibly allowing for a more shareholder-friendly settlement in the latter case.

"While Al Gore didn't, as far as I know, play a role in encouraging former Netscape executive Jim Barksdale to look to Washington to constrain Microsoft ... It does seem far more plausible to me that a Gore administration would do nothing to goad Justice toward a more lenient compromise with Bill Gates and company, while Bush arguably would," said a report on Gore stocks by Prudential's Gabriel.

Bush would likely also drop plans for a federal case against the tobacco companies, ISIG's Laperriere said. Tobacco stocks went on a heady run midsummer, and the American Stock Exchange Tobacco Index rose almost 30% between July 17 and Aug. 17, when Bush's poll numbers suggested he had his widest lead against Gore. But the index has been stuck in a range since then.

"The federal government is currently preparing a lawsuit against the tobacco companies, but it is unlikely that Bush would launch a suit," he said.

Meanwhile, a tougher case against Microsoft under Gore could help "speed along the migration from desktop systems to wireless Internet communications," aiding the likes of Sun Microsystems(SUNW) and America Online(AOL), according to Gabriel.

Testosterone Stocks

While defense stocks have already enjoyed favor under the Clinton administration's peacetime defense buildup, they could be expected to get even more of a boost from Bush, who is seen making some major multiyear funding increases.

And, as a former Texas oilman, Bush can hardly be bad for energy stocks. Gore, on the other hand, continues to use his rhetoric against the big oil companies and remains marked by the Clinton administration, which, some feel, allowed the energy sector to atrophy. So expect a general lift for energy stocks if Bush pulls ahead in the polls and wins.

"The growing consensus is that the sector has become woefully undercapitalized on Clinton's watch, constipated by the administration's dual focus on environmental policy and renewables," said Gabriel.

Energy sector stocks have been on a run lately due to soaring oil prices, but downgrades on sector stocks on Aug. 24 from J.P. Morgan and Morgan Stanley Dean Witter sliced 2.8% off the American Stock Exchange Oil & Gas Index that day, and 1.7% off the Philadelphia Stock Exchange Oil Service Index, while the American Stock Exchange Natural Gas Index ended the day 2.3% lower. J.P. Morgan and Morgan Stanley said the stocks had become overvalued due to the rise in oil prices.

Gore Stocks
Company	Ticker	Friday Closing Price
Agricultural
Archer Daniels Midland	ADM	$8.75
Deere	DE	33.00
Environmental
Roy F. Weston	WSTNA	3.31
Sevenson Environmental	SEVN	12.75
Financial Services
American International Group	AIG	88.81
FleetBoston Financial	FBF	43.00
Marsh & Mclennan	MMC	123.69
Bank One	ONE	36.69
American General Financial	AGC	74.25
AXA Financial	AXF	52.50
The Chubb Corporation	CB	78.38
The Hartford Financial Services Group	HIG	68.50
Lincoln National	LNC	55.00
Fannie Mae	FNM	58.13
Freddie Mac	FRE	43.31
H&R Block	HRB	35.38
Technology
America Online	AOL	55.75
Sun Microsystems	SUNW	120.75
Source: Prudential Securities

A Few for Gore

While it may seem that Gore wouldn't do much for the stock market, there are some environmental remediation and consulting firms, satellite exporters and farm equipment stocks that could benefit under Gore, according to Gabriel. On the environmental front, Gore would be more likely to push through Superfund legislation, which could create financing for the cleanup of hundreds of hazardous waste sites.

Satellite exports could be reinvigorated, meanwhile, since the Democrats were responsible for opening up that market, while a Republican-controlled Congress passed legislation restricting such exports in 1998.

And Democrats have begun chattering about returning to an income-maintenance program to make farm income more stable, which could "boost confidence enough to increase sales of farm equipment," said Gabriel.

Financials

Finally, financials will probably look good no matter how the dice are rolled because of optimism that the Federal Reserve is done raising interest rates. Certainly, Bush's market-based plans for Social Security and student loan reforms could, at the very least, allow recent strength in financials to continue.

But, a Gore win wouldn't necessarily put the breaks on financial stock prices either.

Insurance stocks, Fannie Mae(FNM) and Freddie Mac(FRE) could get a boost from a continuing Gore lead.

Legislation to create a federal insurance charter, as a "cost-saving, industry-friendly alternative to the existing state-chartered regime" might fare better under the Democrats, according to the report, which could give insurance stocks a bit of an upside under Gore.

And while a Republican-sponsored bill to limit the lending power of Freddie and Fannie has not garnered much support in Congress, the perception that it will gain support has grown, and the companies' staunchest defenders in Washington are the Democrats.

Insurance companies have been trading in a relatively narrow range over the past month, but the S&P Insurance Index, which tracks the sector, is up 19% on the year.

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