As an investor, it can sometimes be desirable to tune out all the noise that comes out of Washington. Both sides of the aisle can't seem to get out of their way, and neither side can lay a claim to being a friend to investors. The reality is, everyday regulations are put in place, bills are proposed and occasionally laws are passed that benefit some companies and hurt others.
This picking of winners and losers is the political risk that is assigned to a company’s stock. Sometimes, this risk can be easy to see. For example, a Republican administration tends to be very good for companies that serve as defense contractors. A Democratic administration tends to be a windfall for alternative energy companies. And investors will be watching intently for how regulation will affect a nascent industry like marijuana.
But sometimes the risk can be harder to see. And that's the purpose of this report. We've identified nine stocks that are facing political risks in the future. For some, the risk may be resolved by a trade agreement. In other cases, they are fighting public perception or a change in the party in power. Whatever the source of their risk, these companies will bear watching as 2019 moves along.
Quick Links
- Facebook, Inc.
- Caterpillar
- Stamps.com
- General Motors
- eHealth
- The Stars Group
- Las Vegas Sands
- Deutsche Bank
- Petrobras
#1 - Facebook, Inc. (NASDAQ:META)
Facebook, Inc. (NASDAQ: FB) - It stands to reason that as social media continues to dominate our culture, it would draw the attention of those who would like to see it regulated. The whole idea of social media is to allow for unfiltered self-expression. However, that expression is being seen by liberals as hate speech and by conservatives as politically biased. Both sides are also concerned about privacy (i.e. large volumes of consumer data sitting in one spot is an easy target for hackers), but that is an issue that Facebook is already starting to address and it stands to reason that having more government oversight may not equal more privacy. A larger issue for Facebook is potential antitrust regulation. In 2018, the “Freedom from Facebook” movement was launched. The movement would like to break up Facebook into its composite parts (Facebook, WhatsApp, Instagram, and Messenger), promote content sharing between social media platforms, and impose stricter privacy rules. While the movement has some support, it does not appear to be reaching critical mass and Facebook's stock is currently up almost 20% YTD as of this writing. However, Facebook more than other social media stocks have tended to draw the attention, and ire, of Congress so the situation warrants careful observation.
About Meta Platforms
Meta Platforms, Inc engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments, Family of Apps and Reality Labs. The Family of Apps segment offers Facebook, which enables people to share, discuss, discover, and connect with interests; Instagram, a community for sharing photos, videos, and private messages, as well as feed, stories, reels, video, live, and shops; Messenger, a messaging application for people to connect with friends, family, communities, and businesses across platforms and devices through text, audio, and video calls; and WhatsApp, a messaging application that is used by people and businesses to communicate and transact privately.
Read More - Current Price
- $500.27
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 35 Buy Ratings, 2 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $576.66 (15.3% Upside)
#2 - Caterpillar (NYSE:CAT)
Caterpillar (NYSE: CAT) - Caterpillar faces a double whammy in the words China and commodity prices. Both are geopolitical issues that are largely out of the company's hands but can spook investors in 2019. In their fourth-quarter earnings report, CAT acknowledged that they are expecting sales in China to be flat for 2019. However, that may be an issue that's already baked into the price of their stock. And, if the U.S. and China can come to an agreement, the stock could have a large upside. Caterpillar is also cautiously optimistic about a possible resurgence in the U.S. housing market. However, Caterpillar is more than just big yellow machines. They also compete in the energy and transportation segment as well as the resource industries segment. Resource industries are the smallest segment of their business, but it is a cyclical sector that is dependent on the price of metals and minerals, which have been tumbling. If those prices don't recover, it will be hard for Caterpillar to meet its guidance for 2019. Their energy and transportation sector is also likely to be impacted by the volatility in oil prices. As of this writing, CAT stock was trading in a tight range for 2019.
About Caterpillar
Caterpillar Inc manufactures and sells construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives in worldwide. Its Construction Industries segment offers asphalt pavers, compactors, road reclaimers, forestry machines, cold planers, material handlers, track-type tractors, excavators, telehandlers, motor graders, and pipelayers; compact track, wheel, track-type, backhoe, and skid steer loaders; and related parts and tools.
Read More - Current Price
- $329.36
- Consensus Rating
- Hold
- Ratings Breakdown
- 7 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $336.31 (2.1% Upside)
#3 - Stamps.com (NASDAQ:STMP)
Stamps.com (NASDAQ: STMP) - If you’re looking at a company that partners with the U.S. Postal Service having political risk, it would be fair to look at Amazon. The Trump administration certainly seems to be. However, to be brutally honest, Amazon will be just fine. Stamps.com on the other endured a year that saw its stock fall than rise on potential USPS reform. It’s easy to dismiss any concerns about STMP as being a question of perception being greater than reality, but the likelihood is that something has to give when it comes to the USPS. Recommendations released in 2018 suggested that the relationship (and business model) between the USPS and Stamps.com should continue to be business as usual. However, it’s becoming clear that there is growing movement at least in the Executive branch of the government to make meaningful postal service reforms. STMP’s stock has been surging in the first month of 2019 after losing almost 50% of its price in the latter half of 2018. However, future action by Congress could mean the stock is still not out of the woods.
About Stamps.com
Stamps.com, Inc engages in the provision of Internet-based mailing and shipping solutions. It operates through the following segments: Stamps.com and MetaPack. The Stamps.com segment offers postage online and shipping software solutions offered to consumers, small businesses, e-commerce shippers, enterprise mailers, and high volume shippers.
Read More - Current Price
- $329.61
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#4 - General Motors (NYSE:GM)
General Motors (NYSE: GM) - It seems like few industries are affected by the sound bites that come out of Washington than the automotive industry. General Motors is no exception. Investors cheered GM's recent move towards cost-cutting designed to make them leaner and more flexible. However, that plan requires plant closings and job losses, which is drawing criticism from the White House as well as congressional leaders on both sides of the aisle who have constituents in states where plants are closing. Adding to the political risk for GM is the new Congress, where Democrats control the House of Representatives. There will likely be new legislation written that will attempt to enforce higher fuel-economy standards at the exact time that GM is turning its focus to its larger, more profitable vehicles. These potential risks, however, are not hurting the stock right now. GM is up over 10% YTD in the first month of 2019, whether it continues to rise will depend, in part, on its ability to avoid becoming the target of new legislation and rhetoric.
About General Motors
General Motors Company designs, builds, and sells trucks, crossovers, cars, and automobile parts; and provide software-enabled services and subscriptions worldwide. The company operates through GM North America, GM International, Cruise, and GM Financial segments. It markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Baojun, and Wuling brand names.
Read More - Current Price
- $47.14
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 5 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $55.17 (17.0% Upside)
#5 - eHealth (NASDAQ:EHTH)
eHealth (NASDAQ: EHTH) - Another hot button issue for investors and politicians is health care, and eHealth has been at the center of this storm. First, the good news. The small-cap company has seen its stock soar to levels it has not seen since late in 2014, including a near 40% rise since the beginning of 2019. In 2014, the company was expected to be one of the larger beneficiaries of the Affordable Care Act (ACA), that didn’t equate to stock price growth. The stock languished down around its original $15 per share figure throughout much of four years. The question for EHTH is whether the current levels are sustainable. While the ACA was struck down in a Federal court, the return of the Democratic party to a ruling position in the House of Representatives may allow a certain sense of "business as usual" to remain. With the next presidential election over a year away, it's likely that there will be a high-risk premium on this stock over the next 18 months.
About eHealth
eHealth, Inc operates a health insurance marketplace that provides consumer engagement, education, and health insurance enrollment solutions in the United States. The company operates in two segments, Medicare; and Employer and Individual. The Medicare segment offers sale of Medicare-related health insurance plans, which includes Medicare advantage, Medicare Supplement, and Medicare Part D prescription drug plans to Medicare-eligible customers including but not limited to, dental, and vision insurance, as well as advertising program for marketing and other services.
Read More - Current Price
- $3.79
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $3.50 (7.7% Downside)
#6 - The Stars Group (NASDAQ:TSG)
The Stars Group (NASDAQ: TSG) - Gambling stocks, like most “sin stocks”, benefit from their ability to be monetized for political gain. But what has become a windfall for brick-and-mortar casinos has not yet translated to the online gambling space. Online gambling remains illegal in most states. In fact, only three states currently offer online casino gambling. The Stars Group is betting that their fortunes will turn. That’s because they are well-positioned to take advantage of the real growth in the industry that is projected to come from online sports betting. In 2018, TSG was named the official gaming operator of the National Basketball Association. And they have an agreement in place with Eldorado Resorts to run online betting in 11 states. But that deal is contingent upon legalization. The Federal government has ceded the issue of online gambling legalization to the states, but there remain significant hurdles before states will make online gambling, and online sports betting in particular, legal. In the meantime, TSG recently acquired Sky Betting & Gaming which is another way that they are going all in on the hope that online gambling will become more widespread in the United States.
About The Stars Group
The Stars Group Inc engages in online gaming and betting businesses primarily in Europe, Australia, and the Americas. It owns and operates gaming and related interactive entertainment businesses, such as online real-money poker, casino and betting, play-money poker, and casino and sports prediction games, which are delivered through mobile, Web, and desktop applications.
Read More - Current Price
- $27.31
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#7 - Las Vegas Sands (NYSE:LVS)
Las Vegas Sands (NYSE: LVS) - The concern for Las Vegas Sands has to do with their international operations, particularly in their largest growth market, Macau. LVS has significant exposure to China and the persistent slowdown in its economy is causing a decline in gaming activities in Macau. The company's stock has mirrored the volatility of the broader market – it dropped nearly 40 percent from a high of $80 in the summer of 2018, and is now up over 20% from those lows. The recent uptick is encouraging in that it suggests that analysts may have already factored the Macau slowdown into the stock, and the company’s market share in Macau continues to grow and currently sits at 34%. They are the only company that has shown a growth in market share since 2012. However, analysts are quick to point out that having a large market share in a contracting market is not optimal. That being said, another political risk remains. LVS has gaming concessions with Macau that expire in 2022. If China is so inclined, they could use those concessions as a bargaining chip in the upcoming trade negotiations with the Trump administration. This could put further downward pressure on the stock.
About Las Vegas Sands
Las Vegas Sands Corp., together with its subsidiaries, develops, owns, and operates integrated resorts in Macao and Singapore. It owns and operates The Venetian Macao Resort Hotel, the Londoner Macao, The Parisian Macao, The Plaza Macao and Four Seasons Hotel Macao, Cotai Strip, and the Sands Macao in Macao, the People's Republic of China; and Marina Bay Sands in Singapore.
Read More - Current Price
- $39.70
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $55.25 (39.2% Upside)
#8 - Deutsche Bank (NYSE:DB)
Deutsche Bank (NYSE: DB) - Political risk is not limited to U.S. companies. Once the leading bond underwriting bank on the international banking scene, Deutsche Bank has fallen on hard times. Two high-profile money laundering cases caused their company's stock price to hit record lows. On February 1 of this year, the bank released its quarterly earnings that showed an eighth consecutive decline in revenue. This is adding pressure for the bank to take more radical, alternative growth plans. One idea floated in late 2018, is for the company to merge with Commerzbank. While the merger is controversial on many levels, there is concern that DB does not have the resources to remain solvent if the economy were to stumble. That pressure will become more intense as the bank recently announced that the German economy is teetering towards a recession. The merger is backed by the German government, which is looking to avoid having to use taxpayer funds to prop up their banking industry. The stock is up from recent lows and is currently trading at just 0.24x book value. If the merger goes forward, DB may be an interesting play.
About Deutsche Bank Aktiengesellschaft
Deutsche Bank Aktiengesellschaft, a stock corporation, provides corporate and investment banking, and asset management products and services to private individuals, corporate entities, and institutional clients in Germany, the United Kingdom, rest of Europe, the Middle East, Africa, the Americas, and the Asia-Pacific.
Read More - Current Price
- $16.16
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 2 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#9 - Petrobras (NYSE:PBR)
Petrobras (NYSE: PBR) - Petrobras, whose formal name is Petroleo Brasileiro, is a vital part of the Brazilian economy. However, as the country's state-run oil company it became part of the political story when the company was embroiled in a bribery scandal that eventually resulted in the impeachment of the country's former President Dilma Rouseff (who was also the former chair of Petrobras). The new regime is looking to distance itself from the day-to-day operations of the company, which could lead to the company being able to privatize. And in other good news for investors, the company recently announced it may cancel their quarterly dividend payments in an effort to accelerate their debt reduction plans. It remains to be seen whether the government will truly be able to take a laissez-faire attitude towards a company that is so vital to the country’s economy. This is particularly true in the face of volatile oil prices. But the stock price has been showing modest gains and could be set to go even higher if they do indeed become a private entity.
About Petróleo Brasileiro S.A. - Petrobras
Petróleo Brasileiro SA - Petrobras explores, produces, and sells oil and gas in Brazil and internationally. The company operates through Exploration and Production; Refining, Transportation and Marketing; and Gas and Power. It also engages in prospecting, drilling, refining, processing, trading, and transporting crude oil from producing onshore and offshore oil fields, and shale or other rocks, as well as oil products, natural gas, and other liquid hydrocarbons.
Read More - Current Price
- $14.75
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 6 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $17.63 (19.5% Upside)
Political risk is just one of many risk factors that can affect the profitability, and stock performance, of a business. The risk to some sectors – like defense contractors and the oil and gas industry – is fairly obvious and is usually happens as a series of predictable spasms, usually revolving around election cycles. But the political risk for other sectors and businesses can be harder to see coming. Political risk is seen as a long-term risk because, although it can be difficult to quantify, it will increase over time simply because the geopolitical landscape is constantly changing. Those changes will tend to reward some sectors and increase the risk premium to others. And political risk is inherent in more than just domestic stocks. International companies have had a lot to digest from U.S. policy in the last 12 months, yet still have to factor in issues such as terrorism, riots, and civil wars in the countries in which they do business.
The best way to protect yourself from political risk is through information. In this slide show, we’ve shown you nine companies whose stock could be facing a downside risk due to geopolitical events. From this list, you can probably begin to think of other companies in the same sectors that may be affected. You may even have some of those stocks in your portfolio. By investing in our MarketBeat All Access service, you can get instant alerts on the stocks you’re following along with access to our premier research platform so you can tune out the noise of the mainstream financial media and focus on the information that impacts your portfolio.
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