There’s a 76.2% chance that the U.S. Senate will change hands today.
That’s not my prediction. It comes from Nate Silver, an eerily accurate, tech-centric election forecaster.
Silver burst on the national political scene in 2008 with an elaborate computer model that showed Barack Obama winning in a landslide. And he was on the money in 2012, too, predicting almost exactly how much Mitt Romney would lose by.
This Republican surge is good news for tech investors if they want to profit from the big changes brewing in Washington.
So that’s why I’m telling you now about three stocks that will dominate if the Senate turns Republican after the polls close tonight…
Focus on the Facts
Technology is, by definition, apolitical. After all, a smartphone doesn’t know if you’re a Democrat, a Republican or an independent. It either works well or it doesn’t.
But here’s why I’m talking about politics today.
Political change almost always means winners and losers. And my job is to help you make money in any environment.
First off, however, we can’t let our own political passions mislead us. That’s something I’ve learned personally during my 30+ years as a technology investor.
If your hatred for Ronald Reagan in the 1980s or Obama in the 2010s kept you on the sidelines as an investor, you missed two huge bull markets.
Silver’s work is so admirable not only because of its focus on the facts but also due to the complex methodology he employs to get the most accurate predictions. He shares those forecasts at FiveThirtyEight.com, where he is editor in chief.
Silver has formerly worked with The New York Times and the polling firm Rasmussen Reports. But he’s now with ESPN.
In the political world, Silver already has the equivalent of two perfect games. In 2008, his model correctly called 49 out of 50 states. He missed only Indiana, which Obama captured by just 0.1%.
Then in 2012, he did even better. He correctly forecast 50 out of 50 states. The night before the election, he saw momentum shifting to President Obama in Florida and made the correct call.
Given Silver’s impressive track record, I’m going to assume he’s right this year. So, let’s take a look at three stocks that will do well during a change in Washington’s political atmosphere.
Political Change Tech Winner No. 1: Lockheed Martin Corp. (NYSE: LMT)
President Obama’s budget plans call for defense spending to fall to 2.3% of gross domestic product (GDP) by 2024. By comparison, defense spending was 6% of GDP under Reagan and 9% under John F. Kennedy.
If Republicans in Congress push the ratio up to just 3.3%, that could mean as much as $175 billion a year.
Lockheed Martin is well suited to profit from the change. Tracing its roots back more than 100 years, the Bethesda, Maryland-based firm is probably best known for making military aircraft, like the F-22 Raptor fighter jet, the C-5 Galaxy cargo plane and the MH-60R Seahawk antisubmarine helicopter.
But the company also makes naval vessels, such as close-to-shore littoral combat ships (LCS), and ground vehicles, like the unmanned Squad Mission Support System, which is equipped with an array of robotics technology.
Plus, as a tech-focused corporation, Lockheed Martin has deep expertise in biometrics, cybersecurity and the booming field of cloud computing.
With a market cap of $59.4 billion, Lockheed trades at $191. Sales have been flat lately, but the company has high investment margins. It has operating margins just shy of 12% but returns an amazing 109% on stockholders’ equity.
Political Change Tech Winner No. 2: U.S. Silica Holdings Inc. (NYSE: SLCA)
Over the six years he’s been in office, President Obama has emphasized alternative energy, such as wind and solar, over conventional petroleum products, like natural gas and oil.
On the other hand, a GOP Senate will likely push for increased drilling as a way to make the United States more energy independent.
That’s good news for U.S. Silica, which I first introduced you to back in February. Founded in the late 1800s, the Frederick, Maryland-based firm ranks as a leading supplier of silica sand used for hydraulic fracking of natural gas and shale oil.
U.S. Silica ships much of its sand by its own rail, truck, or barge assets to all major shale plays in the United States. It offers investors both specialization and diversity.
The company’s specialty division accounts for 40% of sales. That unit makes materials used in autos, smartphones, tablet computers and performance chemicals.
With a market cap of $2.3 billion, the stock trades at $43. It has 19% operating margins and earns 27% on stockholders’ equity. The stock is off along with the rest of the energy sector, but it’s poised for a rebound – it just beat third-quarter earnings forecasts.
Political Change Tech Winner No. 3: Boston Scientific Corp. (NYSE: BSX)
I doubt that Republicans will be able to repeal the Affordable Care Act. However, some candidates have expressed a desire to repeal Obamacare‘s 2.3% tax on medical devices – a more doable proposal.
That would be a big help for Boston Scientific, a firm in the midst of a turnaround – one of my favorite “special situations.” Last year, the company’s CEO said the medical device tax had a $75 million negative impact on the company’s operations.
Boston Scientific makes a wide range of devices that include everything from forceps and surgical guide wires to implantable heart pacemakers and spinal cord stimulators.
Founded in 1979, the Marlborough-Massachusetts-based company pioneered the use of medical devices for less invasive medical procedures. Today, it operates 12 manufacturing centers and does business in more than 100 countries.
With a market cap of $17.5 billion, the stock trades at just $13 a share. I’d like to see a return on equity higher than the current 4%, but it does have operating margins of more than 13%.
Now then, the market may be bumpy in the days ahead. That often happens after a major election change as investors try to handicap what it all means for the economy, the market and individual stocks.
But these are three very promising stocks in sectors that stand to greatly benefit if the Senate changes hands, as Silver predicts.
And remember, our job as tech investors is to turn big changes in the economy and the political environment into cash in our pockets.
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