Sentry Investments analyst Andy Nasr identifies two U.S. stocks that will continue to prosper regardless of the U.S. election results. One is a pharmacy operator popular with drugstore-cowboy seniors. The other is a live event producer popular with concert-going millennials.
As U.S. presidential candidates Hillary Clinton and Donald Trump duke it out, many investors may worry about the election’s effects on the economy, both south of the border and, ultimately, around the world.
However, amid all the hype, mud-slinging and apparent polarization inundating U.S. politics, analyst Andy Nasr dismisses hand-wringing as much ado about nothing.
Mr. Nasr is an investment strategist and vice-president, capital markets at Sentry Investments in Toronto. Before joining Sentry, he served as managing director and senior portfolio manager at Middlefield Group.
Remarking on U.S. election uncertainty, he concedes “It’s something you want to be wary of.” Nevertheless, he maintains that, looking at the historical record, the likelihood of any U.S. presidential candidate effecting “transformational” change if elected is actually quite slim. “The policy impact has been relatively muted.” The president-elect would require a “clean sweep”, that is, his or her party would also need to control both the Senate and the House of Representatives to push through any major changes to the status quo.
“It’s probably the least likely scenario” given the current political climate, says the analyst. Mr. Nasr concludes: “The only one that you really have to worry about is a Republican clean sweep because Donald Trump seems to have the most radical policies.”
Both consumers and corporations may hold back on spending or investing before election day, but after the dust settles and businesses have a more clear idea of the next president’s real policy priorities, corporate profits should stabilize in 2017, Mr. Nasr predicts.
If oil prices rebound in 2017 as they are widely expected to as well, that should further stimulate growth in the United States.
Despite correction concerns since the market has rallied admirably for months already, Mr. Nasr points out that the market multiple for the S&P 500 indicates that valuations remain fair in light of current economic conditions.
“It looks like there’s still some excess slack in the U.S. economy.”
In this climate, Mr. Nasr advises investors to focus on finding companies that will deliver cash flow and earnings growth. His first ‘best buy’ selection is a major pharmacy stock that still has plenty of room to grow: CVS Health Corp. (NYSE—CVS). This healthcare stock has a network of 10,000 drugstores in the U.S., 1,000 walk-in clinics and 75 million pharmacy benefit plan members.
The analyst says recent poor performance among some healthcare stocks has created a somewhat negative market sentiment toward the sector. However, he suggests that universal drug coverage among the emerging white-haired masses could prove to be a perfect storm for CVS.
Mr. Nasr argues that several longer-term trends favour the pharmacy chain and pharmacy benefit manager, including the implementation of the Affordable Care Act, which subsidizes drug spending for senior citizens.
Only 32 states have implemented the act so far, says Mr. Nasr. He adds that if Mrs. Clinton wins, she will probably expand the act, while Mr. Trump says he will repeal it, but will likely replace it with a different program or at least keep the drug subsidies.
According to the analyst, patients who do not have insurance only fill out prescriptions four or five times a year, but those with coverage will go eight or nine times. Thus, once lower-income customers have coverage, they will visit the pharmacy more often. Meanwhile, the U.S. population as a whole will gradually become older over the next few decades. Mr. Nasr notes that from age 65 onward, people spend three times more on health care than in their younger years.
“They’re just going to spend more on health care in general.”
Best buy among consumer stocks
Live Nation Entertainment Inc. (NYSE—LYV), the analyst’s second ‘best buy’, may not dispense life-saving medicine, but the world’s largest live entertainment company cures the ‘fear of missing out’ that affects so many millennials. “It’s really catering to an increased appetite for viewing live events,” says Mr. Nasr.
This top performing consumer stock already controls 30 per cent of the US$17-billion global concert industry and intends to consolidate further. The analyst stresses that the worldwide industry has grown in 29 of the last 30 years; in 1998, it was still worth slightly less than US$4 billion. Both the number of events and ticket prices have increased, he adds. “There’s an inflationary element there.” Referring to the one year sales retreated, he says: “Ticket sales fell nine per cent in 2009 so it wasn’t that drastic in the worst-case scenario.”
Live Nation staged 25,000 concerts in 2015. Management hopes to reach 40,000 in 2020, targeting emerging markets such as Latin America, the Asia-Pacific, and South Africa.
Since 2010, this top consumer stock has also owned Ticketmaster, which recently introduced ticket reselling services, similar to StubHub. Reselling is a major growth avenue, says Mr. Nasr.
Investor’s Digest of Canada, MPL Communications Inc.
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