It’s August in a leap year, and we all know what that means: the quadrennial silly season is upon us, the regular campaign for the Presidency. This year, politics are more divided than ever, and how a pundit sees the mid-term future tends to be more a function of party affiliation than skill in divination. In any case, RBC has dusted off the crystal ball, and listed the stocks that stand to gain on a Joe Biden win come the fall.
In a way, this may be a no-brainer. Biden, who served nearly 40 years in the Senate and as Obama’s Vice President, is widely viewed as one of the best-qualified candidates ever to run for White House. Between his experience, and his Senate history of giving business a friendly nod, Biden’s presence at the top of the ticket eases some voters’ anxiety about anti-business planks in the Democratic Party platform.
Still, some companies may be better positioned than others in the event of a change of Administrations. We’ve pulled up the details on three of RBC’s picks to gain from an election year switch. Using TipRanks’ Stock Comparison tool, we lined up the three alongside each other to get the lowdown on what the near-term holds for the trio.
Valero Energy Corporation (VLO)
Valero Energy is a petroleum refining company, producing a wide range of products including gasoline, kerosene, jet fuel, and diesel, as well as non-fuel oil products like asphalt and lubricating oils. The company brings in well over $110 billion in annual revenues. Given the absolutely essential nature of petroleum-based fuels in the modern economy, Valero sees itself as insulated from rapid changes. While candidate Biden has promised to cut back dramatically on oil digging and production, as part of a Green economic initiative, in the near- to mid-term Valero’s fuels will remain the driver of the country.
In addition, Valero has a strong biofuel segment, as a hedge against the future. The company is a major producer and transporter of biodiesel, and regularly uses ethanol in its gasoline blends. A Biden Administration, pushing to get away from petroleum fuels, would simply accelerate a move that Valero is already starting.
The company’s fundamental strength can be seen in its dividend policy. In July, VLO declared a regular common stock quarterly dividend of 98 cents per share, or $3.92 annualized. This was the third quarter in a row that Valero has declared the dividend, which has remained stable at this level through the coronavirus crisis. The current yield is nearly 7%, a strong return by any standard.
RBC’s Brad Heffern notes Valero’s biofuel exposure in his comments on the stock, saying, “We believe if Biden wins the 2020 election this favors VLO, as Vice President Biden has historically been in favor of next generation biofuels. VLO is the 2nd largest renewable diesel producer in the world and the largest renewable fuels producer in North America. VLO continues to expand its renewable diesel footprint and is targeting 675 million gallons of production capacity per year over the next few years.”
Heffern’s $69 price target supports his Buy rating on VLO, and implies a 28% upside potential for the stock in the coming year. (To watch Heffern’s track record, click here)
Overall, Valero's Strong Buy analyst consensus rating is based on 12 Buys opposed to just 2 Holds. The stock’s $73.85 average price target suggests it has room for 36.5% upside growth from the current trading price of $54.11. (See Valero’s stock analysis on TipRanks)
Summit Materials (SUM)
Next on or list, Summit Materials, is always under your feet, if not your thoughts. The company supplies building materials – specifically, asphalt, cement, and ready-mix concrete – to the construction industry. These are the building blocks of our roads and sidewalks, making them basic products in any infrastructure project. Summit supplements its materials business with services, including deliver, paving, and trucking.
Both parties have been promising Federal funding for infrastructure projects, but the current division, with Republicans controlling the White House and Senate while Democrats lead the House, makes getting a bill through difficult, to say the least. While there are many scenarios in which Trump wins reelection, few of them include a Republican win in both chambers of Congress – but, such a sweep is considered likely for the Democrats should Biden take the White House.
In that event, investors can look for increased Federal spending generally, and likely a major infrastructure bill in the early part of the 2021 Presidential term. In that case, Summit is one of the likely winners.
This is the case laid out for RBC by analyst Michael Dahl. He writes, “In a Biden presidency and democratic sweep in Congress, the prospect of passing federal infrastructure legislation becomes much more likely, which would be a clear positive catalyst for our aggregates names. We … prefer SUM as we see greater relative upside potential given its relative leverage and valuation discount to larger aggs peers. We believe for aggregates, the risk of higher taxes is more than offset by the higher probability of the passage of a federal infrastructure bill.”
Dahl back his Buy rating with a $25 price target, suggesting a 65.5% upside for Summit in the coming year. (To watch Dahl’s track record, click here)
Summit is another company with a Strong Buy from the analyst consensus, this one based on 8 Buys and 2 Holds. Summit’s shares are selling for $14.72 and the average price target, at $22.44, indicates it has a 52% upside potential. (See Summit stock analysis on TipRanks)
Sherwin-Williams Company (SHW)
Last on our list may seem an unlikely candidate, but Sherwin-Williams has some undeniable strengths behind it. The company makes paint, and is a stand-by of the home improvement and do-it-yourself segments. Sherwin-Williams’ products are highly regarded for quality by both professional and individual consumers.
Biden’s platform includes planks to increase the Federal outlay for made-in-America products, as well as formal requirements for Federal contractors to use American products. Both are seen as bullish for a company like Sherwin-Williams, which boasts that it has been American made since 1866.
Covering the stock for RBC, 5-star analyst Arun Viswanathan likes what he sees in Sherwin-Williams, and more to the point, he likes what he foresees in a Biden White House. Believing that a Democrat win will at least bring greater stability, Viswanathan adds, “We believe Biden's Make it in America program will benefit the US consumer and economy. Therefore we like the coatings names that have larger exposure to US housing and the US consumer.”
The analyst puts a Buy rating on the shares, and his $700 price target indicates a modest, but real, 8% upside from current levels. (To watch Viswanathan’s track record, click here)
Sherwin-Williams is a Moderate Buy pick, with the consensus rating coming from 9 Buy, 5 Hold, and 1 Sell reviews. The shares are not cheap – this stock sells for $649.21, which limits the room for the upside potential. The average price target is $672.47, implying a 3.5% upside. (See SHW stock analysis on TipRanks)
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
