This year is a big one for the market. So far, Wall Street has been on tenterhooks as China’s coronavirus wreaks havoc around the world and threatens to impact global economic growth. Plus, the 2020 U.S. presidential election will become a major focus for investors once a Democratic candidate is selected. Most are banking on a Trump win, which should be positive for the market. Still, voters could swing either way — which means it could be time to start looking for election stocks to buy in order to protect against market swings in the aftermath of the vote.
Should this year’s presidential election influence your investing decisions? That’s a tough call. State Street Global Advisors’ deputy global chief investment officer Lori Heinel says investors have become a little bit complacent when it comes to considering politics. She cautioned that the belief of President Donald Trump winning again could cause wild swings in the market if a Democrat gets into office.
While exercising caution certainly isn’t a bad thing, others disagree. Cristian Tiu, Associate Professor and Chair of Finance at the University at Buffalo School of Management, told InvestorPlace in an email that staying on the sidelines for fear of a disruption after the election isn’t your best strategy because no one can time the market perfectly:
“I pulled some money out of the market at the last presidential elections cycle because I was thinking that we will have either a more regulatory inclined, somewhat anti-business presidency, or a chaotic presidency. Both of which are liable to cause a stock market drop from already-high levels. I bit my nails in despair watching how the market zoomed past my cash set aside. I could have not been more wrong. …So if you don’t like volatility, pull out and avoid the stomach churn. But in terms of predicting the next crisis, I cried wolf too many times already to believe myself.”
History’s Best Bets
So, that leaves investors hoping to protect their wealth without missing out in a tough spot. Perhaps the best strategy is to use history as a guide. According to Barrons, an analysis of the S&P 500 and its sectors shows that the IT, Consumer Discretionary, Financials and Energy sectors tend to perform the best in the 12 months following an election.
With that in mind, here are my picks for stocks to buy in each of those top-performing industries.
Aside from post-election, the Barrons data showed that the energy sector also performs relatively well in the 12-month lead up to the election. So, it’s worth placing bets in that sector now.
That said, big-name oil and gas stocks like Exxon Mobil (NYSE:XOM) are a good option for investors. Of course, the industry is likely to see a boost should Donald Trump get re-elected. However, shares could head the other way if a Democrat takes over in office.
In addition, the benefit of owning an oil major like XOM is diversity and stability. Not only does Exxon have a relatively strong balance sheet compared to its peers, but the firm’s 5.7% dividend yield offers a bit of a cushion if there is a post-election dip.
Overall, XOM is a top stock to buy in the energy sector after the first Tuesday in November.
Bank of America (BAC)
The financial sector is another area that tends to perform relatively well in the lead-up to an election. And while this area has been hit hard with concerns regarding low interest rates, the industry could still offer a strong performance over the next two years as the U.S. economy continues to gain momentum.
Right now, Bank of America (NYSE:BAC) trades at just 10 times its forecasted earnings. This is well below the S&P 500, and under the financial sector’s average of around 13. The firm pays out a respectable 2% dividend yield, and it’s strong position within the industry makes it a good buy-and-hold pick to capitalize on the improving U.S. economy.
With that in mind, BAC is looking like another stock to buy for investors.
American Eagle Outfitters (AEO)
Picking a consumer discretionary stock can be a tricky business, especially if you’re looking at a fashion retailer.
However, American Eagle Outfitters (NYSE:AEO) makes for a great turnaround story that looks likely to continue chugging away. AEO is now America’s second most popular jeans brand, and has grown its online presence over the past few years.
Edward O’Connor, a co-manager of the Wells Fargo C&B Mid Cap Value (MUTF:CBMAX) fund says American Eagle makes for a quality pick because the firm is extremely liquid. The firm’s balance sheet shows two dollars per share in cash, which is something O’Connor says is adds a layer of security in the retail space.
Collectively, AEO is a leader in the consumer discretionary sector. And this alone makes it another member of the great stocks to buy for investors.
The tech sector is another tricky area to place bets, especially as coronavirus worries loom over much of the sector. However, Microsoft (NASDAQ:MSFT) looks like a good bet in that industry because the firm is positioned for strong growth in the years ahead.
Goldman Sachs strategy Ryan Hammond says the tech sector as a whole is well-positioned for growth. However, he warns that investors should look to software and services over hardware. Why? Because they tend to perform better in low interest rate environments, according to Hammond.
Furthermore, Microsoft’s ever-growing cloud arm is one of the main reasons to add the stock to your portfolio. And while Amazon (NASDAQ: AMZN) has challenged Microsoft’s Department of Defense contract win, it’s likely to go forward if Donald Trump remains in office.
This, along with other catalysts, make MSFT another great stock to buy.
As of this writing, Laura Hoy was long AMZN, XOM, and MSFT.