Which US stocks will benefit from a Democratic government?

This article was originally published on Opto - Understand What Really Moves Markets.

The election of Barack Obama back in 2008 was hailed as a new start for renewable energy, following eight years of inertia under the US presidency of George W. Bush. Could a win for Joe Biden, the Democratic Party's nominee, provide a boost for green energy and clean technology stocks?

As the US prepares to head to the polls on 3 November, analysts and traders alike are considering how a Joe Biden and Democratic Party win would influence US stocks. 

Back in July, RBC Capital Markets published the results of a survey of equity analysts regarding which stocks would benefit the most from a Democratic Party win. The conclusion was that, if Biden were to get into the White House, the situation would likely be bullish for utility stocks, slightly bearish for technology, and neutral for communication services and consumer staples. 

The lure of clean energy

Among the biggest winners are expected to be renewable energy and clean technology stocks. This includes the petroleum refiner Valero [VLO]. The company's commitment to producing cleaner diesel and ethanol aligns with Biden's clean energy agenda.

Brad Heffern, an analyst with RBC, wrote in a recent note. "We believe if Biden wins the 2020 election, this favours Valero, as vice president Biden has historically been in favour of next-generation biofuels. Valero is the second-largest renewable diesel producer in the world and the largest renewable fuels producer in North America. Valero continues to expand its renewable diesel footprint and is targeting 675 million gallons of production capacity per year over the next few years."

Heffern has assigned the stock a Buy rating and set a price target of $69. This would mark a 31.9% increase on Valero's closing price of $52.33 on 3 September.

As you might expect, Tesla [TSLA] is another of the companies that is predicted to profit from Biden's clean and green policies. He has planned to champion the electric vehicle (EV) tax credit, which has long been opposed by US President Donald Trump. He has lowered federal EV tax credit and made plans to eliminate the tax credit altogether to save the US government $2.5bn over 10 years. Reinstating the tax credit would likely drive up sales of Tesla vehicles.

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The impact of labour support

Where Tesla and Elon Musk might run into trouble, though, is when it comes to Biden's push for labour support and stronger unions. Musk has been outspoken on the matter and has previously tried to discourage unionising. 

Biden's desire to strengthen unions is part of a grander plan to boost jobs and increase the minimum wage to $15 an hour. There are also plans to ramp up production and installation of thousands of onshore and offshore wind turbines and encourage millions of solar panels to be adopted nationwide.

The push for solar should benefit the likes of First Solar [FSLR]. Under the Obama administration, the price of solar power tumbled -- it has fallen around 90% since 2010 -- despite him being an ardent supporter of renewable energy. First Solar was one of the biggest losers of the S&P 500 after Obama was inaugurated in 2009, according to MarketWatch. Its share price tumbled 75% during his presidency [it exited the list in 2017]. So far this year (through 3 September), First Solar -- now listed on the Nasdaq -- has gained 29.6%.

The push for domestic manufacturing

Since the arrival of Trump, there is now a circa 25% tariff on imported photovoltaic (PV) cells and modules, mainly coming from China -- Obama had also introduced tariffs, but Chinese companies found ways to skirt them. Over time, cheap imports have led to a drop in demand for domestic PV technology and thousands of jobs being lost. 

Under Biden's 'Made in All of America' plan, domestic PV manufacturing could grow again, regardless of whether these tariffs are eventually rolled back or not.

If Biden were to be successful in driving up domestic manufacturing capacity for solar power infrastructure, the demand for PV panels should spell good news for silver as well. The material plays a critical role in conducting the electricity from the energy stored.

All in all, Biden has laid out a $2trn climate package to be spent on clean energy over four years. His ultimate goal is to eliminate carbon emissions by 2035.

A boost for cyclical stocks

Although this may seem like a lofty goal, Daniel Grosvenor, director of equity strategy at Oxford Economics, wrote in a note to clients that a Biden win would undoubtedly lift cyclical stocks as it would most likely result in increased spending on infrastructure. Even more so, if the Democrats end up controlling both the White House and the US Senate. "Old economy sectors, such as industrials and materials, have typically fared well as US government investment increases," Grosvenor wrote.

In his analysis of the situation, Simon Webber, portfolio manager at Schroders, has argued that the growth outlook for EVs, renewables, hydrogen and solar power, and battery storage will be "turbo-charged" in the event of Biden beating Trump to power. 

Nevertheless, he added, the potential economic benefits of transitioning to cleaner and greener energy will remain the same regardless of whether it is Biden or Trump who wins the election. "We see strong prospects for investments in this area whatever the outcome," he said.

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