Investors have plenty of uncertainty to deal with as it is, and the upcoming presidential election is only adding to their worries.
Lest we forget, as results came in on election night 2016, Dow futures fell 900 points. But when the market actually opened the next day, the Dow rallied to near all-time highs.
Whether we see that kind of whiplash action this time around remains to be seen, but investment strategists say investors would do well to be prepared for rollercoaster days ahead. While the more aggressive among us might "bet" on the election via so-called Trump stocks and Biden stocks, conservative investors can consider allocating a little bit of capital to "election-proof" stock picks.
What do those kinds of companies look like? David Trainer, CEO of investment research firm New Constructs, implores investors to "put their money in quality companies that are positioned to survive any short-term volatility and have upside potential over the long-term." Stocks that fit the mold have strong balance sheets to withstand difficult economic conditions, and they trade at prices with great upside should the economy recover to pre-COVID levels.
"Furthermore, we expect these companies will not just survive the ongoing economic downturn, but will also gain market share lost by companies who do not survive." Trainer says.
Read on as we look at five "election-proof" stock picks. Trainer says each of these stocks offer lots of downside protection as well as strong upside potential. The analyst community broadly agrees, offering up bullish-leaning consensus opinions on each.
Data is as of Oct. 28. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analyst ratings provided by S&P Global Market Intelligence.
- Market value: $27.5 billion
- Dividend yield: 2.5%
- Analyst ratings: 6 Strong Buy, 3 Buy, 8 Hold, 0 Sell, 0 Strong Sell
Allstate (ALL, $88.00) will cruise through Nov. 3 and beyond, Trainer says; that's great for hunters of bargain stock picks, as ALL shares are currently trading at bargain levels.
"No matter the outcome of the upcoming election, the property and casualty insurance industry will remain relatively unaffected," the investment strategist says. "As a best-in-class insurer trading at a big discount, ALL offers lots of upside."
Trainer adds that if we assume the global economy grows moderately in 2021, Allstate is highly undervalued. "ALL now trades at its cheapest price-to-economic book value in the history of our model," he says.
If anything, shares are priced for profit declines for the next 10 years. But that just doesn't square with what the rest of Wall Street is seeing. Analysts, with a consensus recommendation of Buy, expect earnings to increase at an average rate of 7.1% over the next three to five years, according to S&P Global Market Intelligence.
CFRA, which calls the stock a Buy, seconds Trainer's claim that it is historically cheap compared with peers. And Refinitiv Stock Reports says Allstate's forward price-to-earnings multiple represents a 40% discount to the property and casualty insurance industry average.
- Market value: $11.7 billion
- Dividend yield: 1.3%
- Analyst ratings: 13 Strong Buy, 6 Buy, 13 Hold, 0 Sell, 0 Strong Sell
The results of the election should be immaterial for D.R. Horton (DHI, $90.19), Trainer says. After all, it's one of the nation's largest homebuilders at a time when inventory is low.
"No matter the election outcome, we do not see the demand for new housing changing in the near future," Trainer says. "In fact, housing demand across the country will continue to be a strong tailwind for the home construction industry."
Additionally, D.R. Horton has several competitive advantages, coupled with favorable macro-trends that are not affected by which political party is in power, Trainer says.
A number of analysts agree with Trainer's view. "DHI leads all peers in offering entry-level, affordable homes," says CFRA, which rates the stock at Strong Buy. "DHI has greater access to and lower cost of capital with a large balance sheet than most peers … (and) a proven business model to effectively manage a higher mix of speculative built homes vs. peers."
Analysts' average recommendation comes to Buy, but D.R. Horton does have a comparatively high number of Hold calls compared to other stock picks. However, that's not because of any risk associated with the presidential election. For example, Wedbush rates DHI at Neutral (Hold), but that's solely based on valuation after a big run-up for it and other housing market stocks. Indeed, shares are up more than 30% so far this year.
- Market value: $28.7 billion
- Dividend yield: 2.3%
- Analyst ratings: 2 Strong Buy, 2 Buy, 14 Hold, 1 Sell, 0 Strong Sell
The pandemic doesn't bode well for Hershey's (HSY, $138.20) Halloween this year, but at least it has no exposure to the outcome of the election.
And as a high-quality company, HSY has tools that insulate it in all manner of environments.
"The company offers investors several competitive advantages that are not affected by which political party is in power, including a superior distribution network, innovative products and the large secular growth tailwind of increased snacking among consumers," Trainer says.
Analysts' average recommendation comes to a bullish-leaning Hold, but again, that has nothing to do with the election.
"We continue with our Hold rating for shares of Hershey and we foresee the shares remaining in a holding pattern awaiting stronger revenue growth," Stifel says. "Underlying growth has been driven by price realization and is unlikely to accelerate from here to support upside for the shares."
But more recently, Citi initiated the stock with a Buy rating ahead of its third-quarter earnings, and Wells Fargo and Deutsche Bank upgraded their 12-month price targets on HSY.
As an added bonus for investors who want to sleep well at night, Hershey's characteristics bode well for recessionary environments.
- Market value: $294.3 billion
- Dividend yield: 3.7%
- Analyst ratings: 10 Strong Buy, 7 Buy, 8 Hold, 0 Sell, 1 Strong Sell
JPMorgan Chase (JPM, $96.54), the nation's largest bank by assets and a component of the Dow Jones Industrial Average, arguably has a better path ahead in the event of a Donald Trump win. But it's among the most election-proof stock picks because it likely will shrug off whatever happens on Nov. 3, Trainer says.
After all, the fundamentals will largely stay the same.
"The election will not change JPMorgan's core competitive strengths, such as its strong balance sheet and ability to grow profits in a low and falling interest rate environment," Trainer says.
JPMorgan also has played a key role in ushering in a recovery during the pandemic, adds Trainer.
Piper Sandler, which rates JPM shares at Overweight (Buy), notes that revenue and expense trends were better than expected in the most recent quarter. "Credit quality trends remain relatively favorable and indications of market share gains across many businesses continue to materialize," Piper Sandler writes.
A survey of the 26 analysts covering JPM tracked by S&P Global Market Intelligence gives the stock an average recommendation of Buy.
Simon Property Group
- Market value: $18.6 billion
- Dividend yield: 8.6%
- Analyst ratings: 6 Strong Buy, 2 Buy, 9 Hold, 0 Sell, 0 Strong Sell
The REIT owns and operates retail space in premium malls and outlets, which have been slammed by the pandemic. As such, shares are off almost 60% for the year-to-date, easily making it the most battered of these election-proof stock picks.
Trainer, however, says investors need to maintain long horizons.
"Simon Property Group's quality assets give the firm long-term upside that will be largely unaffected by short-term election results," Trainer says. "Investors should be wary of throwing the baby out with the bathwater. The retailers that survive, such as Williams-Sonoma (WSM), will do so stronger than ever, with less competition, and better equipped to compete against e-commerce giants like Amazon."
Argus Research concurs. Simon's scale, geographic diversification and high-quality portfolio are valuable to retailers," writes Argus, which rates SPG at Buy. "While it will likely take at least a year for Simon to return to its former growth path, well over half of its properties have now reopened."
Interestingly, no analysts have a Sell rating on shares. Their average recommendation comes to Buy, per S&P Global Market Intelligence.
Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
Increasingly, Red States Embrace Marijuana: The Kiplinger Letter
The Kiplinger Letter Ohio becomes the 24th state to legalize marijuana for recreational use via a voter referendum.
By Sean Lengell Published
Charlie Munger of Berkshire Hathaway Has Died
Charlie Munger, vice chair of Berkshire Hathaway, died Tuesday, the company confirmed.
By Alexandra Svokos Published
Best Books on Investing
investing Those looking to build their wealth should consider these best books on investing.
By Coryanne Hicks Published
Stock Market Today: Stocks Enjoy Longest Winning Streak in Two Years
Markets continued to rally on hopes the Fed is done with interest rate hikes.
By Dan Burrows Published
Stock Market Today: S&P 500 Joins Nasdaq in Correction Territory
The Nasdaq managed to hold higher into the close thanks to a strong earnings reaction for mega-cap stock Amazon.
By Karee Venema Published
Stock Market Today: Stocks Finish Mixed as Q3 Earnings Season Kicks Off
The main markets opened higher thanks to solid bank earnings but sentiment fizzled into the close.
By Karee Venema Published
Stock Market Today: China Woes Weigh on Stocks; Homebuilders Get a Buffett Boost
The major market indexes closed lower on Tuesday after China unexpectedly cut several key interest rates.
By Karee Venema Published
14 Stocks Warren Buffett Is Selling (and 1 He's Buying)
Warren Buffett Warren Buffett dumped GM, Procter & Gamble and a number of other blue chip names in Q3.
By Dan Burrows Last updated
What Is the Federal Funds Rate?
The federal funds rate can impact a host of borrowing costs, and thus the entire U.S. economy. Here, we take a closer look at this key metric.
By Jeff Reeves Published
Stock Market Today: Stocks Drop on Troubling China Data, Bank Ratings Worries
The main benchmarks fell Tuesday, but healthcare stocks outperformed as Eli Lilly and Novo Nordisk surged.
By Karee Venema Published