What Investors Need to Know About the New Hampshire Primary

NYSE: SPY | SPDR S&P 500 News, Ratings, and Charts

SPY – The Iowa caucuses proved the most exciting in years, if only because of the major fiasco getting the results became.

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What Investors Need to Know About the New Hampshire Primary

The Iowa caucuses proved the most exciting in years, if only because of the major fiasco getting the results became. We still don’t have the official results, because the Iowa Democratic party may need to recount all the ballots.

Buttigieg appears to have won the most delegates from that (according to the AP), while Biden came in a distant 4th place, greatly harming his former stance as the centrist front runner.

This means that New Hampshire’s first in the nation primary on February 11th could have significant implications for the state of the Democratic primary, and the overall 2020 Presidential race.

So here are the two most important facts investors need to know about how to protect their portfolios from the most chaotic and surprising primary fight in recent history.

New Hampshire Might Cement A Permanent Change In Whose Most Likely To Win The Democratic Nomination

Biden coming in 4th in Iowa caused the probability of him winning the 1,990 pledged delegates necessary to win on the first ballot to fall off a cliff. He’s now in third, behind “no one” meaning a brokered convention.

(Source: Real Clear Politics)

Worse news for Biden is that Buttigieg has apparently become the favored centrist candidate surging to second place in NH polls. Biden is now tied for 5ht in NH polls, behind even Senator Klobuchar.

Now it’s true that about 50% of NH polling respondents say they haven’t made up their minds yet, so Tuesday’s results could certainly surprise us.

But most likely Biden will win, Buttigieg and Klobuchar will siphon off centrist votes from Biden, and Obama’s Vice President will take another embarrassing loss that causes many centrists to question his electability.

Why is Buttigieg showing just a 5% probability of winning the nomination? Because of his weakness with minority voters who will be weighing in in Nevada and South Carolina.

If Buttigieg can come a strong second in NH, or even pull off an upset win (by any margin) then that might be sufficient to give him the momentum to be competitive in NV and SC, who vote on February 22nd and 29th, respectively.

If he comes in second in those states or even wins one of them, that could give him the momentum to do well on Super Tuesday, when 16 states vote at once and 34% of the delegates will be awarded.

Bloomberg is the wild card on Super Tuesday. He skipped the first four states and has spent over $250 million on TV ads in those states proclaiming himself the centrist alternative to Biden. Bloomberg’s argument is that only he can beat Trump in November and Biden’s shattered front runner status has helped him surge to 4th place in national polls.

So what does any of this have to do with investing?

Energy, Healthcare & Banking Stocks Might Become Extra Volatile In 2020 Creating Huge Opportunities For Long-Term Profit

Based on the major promises the Sanders has made surrounding healthcare, financial and energy reforms, it’s possible that those sectors might begin trading with increased volatility as his chances of winning the nomination rise and fall.

It’s important to remember that what a candidate promises to do and what can actually be accomplished are two very different things.

(Source:QuoteFancy.com)

Both Morningstar and Moody’s estimate a “5% or less” probability that sweeping reforms (of any kind) actually will occur this decade. That’s based on the current outlook for the 2020 Congress.

 

(Source: 270towin)

Currently, the consensus for 2020 make up of Congress is a 50/50 Senate and House with a 4 seat Democratic majority (down from 14 today).

A Sander ticket might be enough to excite the GOP base sufficient to cost Democrats one of the four Senate seat pickups that Politico, Sabato’s Crystal Ball, Inside Elections and the Cook Political Forecast forecast are estimating they would win if Biden were the nominee.

If the Democrats win just 3 net Senate seats, then the Senate would be 51/49 Republican and no major reforms will be likely. If the Democrats were to win the expected four seats, then the VP tiebreaker gives them the slimmest of majorities.

Without a 60 seat filibuster-proof majority, no major reforms are likely. With a 4-seat House Majority, no major reforms are likely either, since conservative Democrats are up for reelection every cycle and states like Texas or New Mexico (where the Permian basin is located) are hardly likely to endorse a plan like “banning fracking everywhere”.

So in case, Wall Street ends up freaking out over a potential President Sanders here are my top three energy, healthcare and financial stocks for opportunistic buying…

MPLX (MPLX), Bristol-Myers (BMY), and Bank OZK (OZK).  These are three quality dividend stocks with the following fundamental stats:

  • average quality: 8.3/11 above-average (average dividend aristocrat 9.7)
  • average dividend safety: 4.0/5 above-average (average aristocrat 4.7)
  • average yield: 6.2% vs 1.8% S&P 500 or 3% to 4% most “high-yield” ETF/funds
  • average valuation: 40% undervalued
  • average dividend growth streak: 13.3 years = dividend achiever
  • average 5-year dividend growth: 11.7% CAGR
  • average long-term analyst consensus growth forecast: 7.8% CAGR (vs 6% CAGR likely for S&P 500)
  • average price/earnings or cash flow: 8.4 (nearly Shark Tank valuations and 33% below current private equity valuations)
  • average PEG ratio: 1.08 vs 2.2 S&P 500
  • 5-year total return potential: 6.2% yield + 7.8% long-term growth + 10.8% valuation boost (returning to fair value) = 24.8% CAGR = 19% to 30% CAGR with 20% margin of error

These are anti-bubble stocks, priced for literally zero long-term growth. In reality analysts expect about 8% long-term growth, which is about 33% faster than the market’s historical growth rate.

But just because they are dirt cheap and very strong buy bargains today, doesn’t mean that a political scare might not make them even better opportunities this year.

I own all three of these stocks in my retirement portfolio, several Dividend Kings portfolios, and have limit orders set to chase them to bottom should the market overreact to perceived political risks.

What about a broader market pullback/correction? With the S&P 500 now 13% to 24% historically overvalued we certainly could see a market downturn combine with political uncertainty.

This could create a perfect storm that might allow the prepared long-term income investor to buy more at even better prices.

Buying some today, and retaining room under your risk limits to buy more later is a reasonable and prudent method of profiting from whatever happens next with election 2020.

(Source AZ quotes)

Bottom Line: I’m Watching The Primary Race Closely And Ready To Pounce On Major Market Overreactions

The Democratic horserace has thus far proven to both dramatic and entertaining for political nerds like me.

Whatever your personal political affiliation recognize what the rapidly shifting probabilities of which Democrat will face Trump in November do and don’t represent.

  • the promises each candidate makes are potentially going to move the market, especially energy, financial and healthcare sectors
  • the realities of US politics are such that almost no grand promises are likely to be fulfilled
  • thus top-quality stocks might sell-off, in a major market overreaction that could create potentially incredible buying opportunities

MPLX, Bristol-Myers and Bank OZK are three of my highest conviction ideas to profit from the ongoing chaos that is the 2020 primary/Presidential race.

Each is a quality company, run by trustworthy and competent management, and offers generous, safe and growing income.

What’s more, each is trading at VERY attractive, nearly anti-bubble valuations that prices these dividend growth stocks for slow or even negative growth, that’s almost certainly not going to happen.

No matter who wins the Democratic Primary or November election I’m very confident that anyone opportunistically buying MPLX, OZK or BMY right now or later in 2020 during politically induced pullbacks, is going to make out like a bandit in the coming years.


SPY shares were trading at $335.98 per share on Tuesday morning, up $1.30 (+0.39%). Year-to-date, SPY has gained 4.39%, versus a % rise in the benchmark S&P 500 index during the same period.


About the Author: Adam Galas


Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles. More...


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