Stocks: Betting on Obama

As promised, the first 100 days of President Barack Obama's administration have brought change, and not least in the mindset of investors.

Actions in Washington have always affected the markets, but lately policymakers—from Obama and congressional leaders to Federal Reserve Chairman Ben Bernanke— have taken up the spotlight often reserved for star CEOs or market prognosticators.

One reason is the boldness of Obama's policy goals and the aggressiveness of the federal government's efforts to end the recession and financial crisis. After a massive stimulus bill, Obama has set his sights on an overhaul of the health-care system, regulations to fight climate change, and higher taxes for the wealthy.

"a big and lasting change"

"The Obama Administration views the world differently," says Steve Sherman, director of research at the Aston/Optimum Large Cap Opportunity Fund (AOLCX). "This feels like a big and lasting change in the way government policy goes. That's a big factor for a lot of companies."

Another reason that Washington matters more to investors these days: The deep recession has made it much harder to find companies with solid growth prospects. In that environment, government spending and policies are among "the few places you can look for growth possibilities," says Bill Webb, deputy chief investment officer at Gluskin Sheff + Associates, an investment advisory firm.

Wall Street tends to be a politically conservative place, and many on the Street remain Obama critics. However, investors still are doing what they always do: Identifying trends and trying to exploit them.

"You have to look at change and find who the winners and losers are going to be," says Bill Greiner, chief investment officer at UMB Asset Management.

But looking for investment ideas in Washington is not easy.

Policies Still Fuzzy

When it comes to the effect of government policy on the economy or individual companies, the details really matter. And, while Obama has laid out broad policy goals, most of the actual policies remain fuzzy and uncertain.

One example is health-care reform. Broadly speaking, universal health-care insurance will boost volumes for the entire sector, says Morningstar (MORN) analyst Matthew Coffina. More people with health coverage could mean more consumption of health-care products and services, and more people paying insurance premiums. However, regulations also have the potential to squeeze profits.

Some health-care companies will benefit and some won't, says Don Humphreys, president of Voyager Wealth Management. But, at this point, he says, "you really have no idea what the policy is going to look like."

Another challenge for investors is predicting just how much hype is already built into a stock price. Shares of solar power companies, for example, were bid up on expectations that governments fighting climate change would subsidize their products. But a collapse in energy prices has made solar modules much less competitive on price, hurting the fledgling industry.

seeking long-term impact

Collins Stewart alternative energy analyst Dan Ries warns it could be another two years before new policies "have a meaningful impact" on the solar industry.

Sherman says some policies might give only a short-term boost to a company or industry—for example, spending in the stimulus bill that expires in a year or two.

"We're trying to find the kind of programs that are longer-term and lasting," he says.

Investors know Obama's broad goals, and they know that, with solid Democratic majorities in Congress, he is likely to get his way in key areas. However, they're still figuring out what the specific rules will be for companies and the effect of all this on the broader economy.

BusinessWeek asked investors and analysts which stocks and other investments could benefit from Obama's policies. The accompanying slide show features 20 of their picks.

Return to the First 100 Days for Business Special Report Table of Contents.