Any winners?

On the day after Barack Obama made history, I received a call from a New York-based newsletter editor. Now that both the U.S. and Canadian elections were over, what stocks might potentially benefit from the results, he asked.

It’s a question that arises after every general election, particularly when there is a change in government as there will be in the U.S. come Jan. 20. Investors are always keen to get the inside scoop on who the winners and losers are likely to be going forward.

I told the editor I’d get back to him within 24 hours and then put my mind to trying to think of some plausible securities to recommend. In the end, I came up blank.

It’s easy to pinpoint potential losers. In the U.S. , health care stocks are likely to trend downward because of uncertainty over the form of the national medical insurance program the president-elect has promised to implement and its implications for specific companies. Oil company stocks, which have been hammered by the plunge in the price of crude, are going to get whacked again if the incoming Obama administration decides to introduce a windfall profits tax as has been speculated.

Here in Canada , the re-election of the Harper Conservatives ended the last, faint hope that the income trust sector might survive. No winners there. As for our energy sector, there won’t be a windfall profits tax in this country – the Tories would never risk alienating their Western base with such a draconian measure. But oil and gas producers are going to face higher costs if the Conservatives push ahead with any kind of meaningful plan for reducing carbon emissions.

Canadian exporters, who have been given a boost by the fall of the loonie, may see that advantage offset by inauguration of a president who appears to have protectionist leanings and who has already said he intends to renegotiate NAFTA. If he tries to retreat from that ill-advised stance (and there are already signs of that happening), the strengthened anti-trade coalition in the Democratic-controlled Congress will keep the pressure on him.

One of the major contributors to the depth and length of the Great Depression was an international fall-off in trade, spurred by high tariff policies in the U.S. and overseas. There are disquieting signs we could be heading down that perilous track again. Finance Minister Jim Flaherty was quoted last week as saying he expects some countries to push for more protectionist measures at the upcoming G20 meeting.

There are already clear signs that global trade is slowing, without any government intervention. The Baltic Dry Index, which reflects world shipping activity, has fallen off a cliff in recent months. The erection of more trade barriers can only exacerbate the problem.

When you move beyond the exhilaration over Obama’s victory to contemplate its economic and investment implications, about the best we can hope for is that he does not make a bad situation worse. Based on his policy statements during the campaign, the potential certainly exists for that to happen: tax increases (only for the wealthy? We’ll see); anti-trade legislation; cash incentives to bail out inefficient industries in an effort to preserve American jobs. Such moves may play well politically on Main Street but would risk prolonging the economic downturn.

The president-elect is also on record as saying that reduction of the U.S. national debt is a high priority, calling the debt level ” a hidden domestic enemy, robbing our cities and states of critical investments in infrastructure like bridges, ports, and levees; robbing our families and our children of critical investments in education and health care reform; robbing our seniors of the retirement and health security they have counted on.” This is a laudable goal, and one Canadians understand very well having fought the same tough battle themselves in the 1990s. But acting prematurely to cut spending while the country is in recession would be counter-productive.

Fortunately, Obama appears to be more of a pragmatist than an idealist so he may be able to manoeuvre around the landmines embedded in his program. But we won’t know that for many months.

So what did I say to the New York editor in the end? Two things. First, I pointed out that despite the president-elect’s strong commitment to investing in alternative fuels and renewable energy, oil will continue to be the fuel that drives the world economy for at least the next quarter-century and, one way or another, Canada’s oil sands will play a major role in supplying North America’s needs. I also believe that no government is going to kill the goose that lays the energy eggs by imposing cost burdens that make development uneconomic. Anyone who agrees with that thesis and who has an investment horizon of more than 12-18 months should therefore be buying stocks like Suncor, Canadian Oil Sands Trust, and Canadian Natural Resources while they are cheap. Energy companies with reserves of 25 years and more are being woefully undervalued by a market that seems unable to look across the valley to the peaks beyond.

For investors with a shorter time frame, I suggested sticking with stocks that are more-or-less recession proof, like Shopper’s Drug Mart and Gildan Activewear.

When you boil it down, there are no obvious winning stocks from the election results in the two countries. The best we can hope for is that our politicians don’t conspire to create more losers.

Gordon Pape’s new book Tax-Free Savings Accounts: A Guide to TFSAs and How They Can Make You Rich will be published in January by Penguin Group Canada. Copies may be reserved now at http://astore.amazon.ca/buildicaquizm-20.