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Oppenheimer’s picks for a Republican or Democratic election sweep
Oppenheimer thinks stocks ranging from an electric vehicle favorite to a solid waste collector could get a a short-term boost depending on which party dominates this year’s presidential election in November. “As the 2024 election draws nearer, we expect the outcome of the presidential and Congressional races to impact several key issues affecting our covered companies,” Oppenheimer analysts led by Colin Rusch said in a Thursday note to clients. “We expect stocks’ behavior over the medium-term will more likely be a function of secular trends impacting global demand, and would encourage investors to be opportunistic around short-term sentiment.” Oppenheimer said the key issues as they related to the political economy are: tax incentives and the disbursement of funds under the Inflation Reduction Act (IRA), corporate tax and manufacturing policy, regulatory shifts in power, transportation and agriculture, as well as tariffs and trade policy. Rusch pointed to several stocks as his “best ideas” in both a Democratic clean sweep and Republican sweep scenario, when either party would have control of both the White House and both houses of Congress. He highlighted Sunrun , Ameresco and Green Plains as well-positioned to benefit from a Democratic administration, and Tesla , Republic Services and Caterpillar as likely beneficiaries of a Republican win this year. To be sure, the Oppenheimer analyst said these stocks are only short-term ideas, inspired by catalysts tied to the upcoming presidential election, rather than the firm’s overall, current top picks. According to Rusch, solar power company Sunrun could be a major beneficiary of a Democratic clean sweep. That’s primarily because as a panel installer, Sunrun could see higher project returns due to the IRA’s domestic content “adders” — incentives for renewable energy or infrastructure development that give developers extra benefits for using domestic materials. “We see continuation of domestic content and low-income adders as benefiting project pricing and [cash flow] potential driving 10-15% upside to pricing and margin,” the analyst said about Sunrun, noting that his May estimates forecast the domestic content adder contributing between $90 million and $300 million to the company’s fiscal year 2024 cash flows. Sunrun shares are down 2% year to date through Thursday, but have soared more than 62% this quarter as investors reacted to the company’s second-quarter earnings beat and as it lifted installed storage capacity guidance, alongside expectations of higher-value subscribers and lower financing rates, according to FactSet. Biofuels maker Green Plains is another stock that could gain from IRA tax benefits, especially if the IRA extends support for renewable diesel and sustainable aviation fuel, and support for carbon sequestration and low-carbon intensity credits, according to Oppenheimer’s Kristen Owen. The company processes renewable crops into fuels, industrial alcohols, syrups, proteins and ingredients, according to its website. Green Plains shares are down 46% this year, but analysts surveyed by FactSet analysts think the stock can climb a 44% from current levels over the coming 12 months, based on their consensus price target. “GPRE has the greatest direct exposure to changes in carbon intensity measurement and implementation of the 45Z tax credit,” Owen said. “We believe a Democratic sweep would seek to make the current IRA 45Z credits permanent, helping to shore up demand for renewable diesel and sustainable aviation fuel.” Renewable energy company Ameresco could reap rewards from the stable implementation of IRA incentives under a Democratic sweep, especially those tied to its growing energy storage business, Oppenheimer said. Shares are up about 1% this year but have jumped almost 18% over the past month, recovering from an early August slide when the company lowered its earnings guidance for the current fiscal year. Electric vehicle company Tesla could see a boost under a Republican takeover, according to Oppenheimer. “Given TSLA’s cost leadership and Elon Musk’s cultivation of a relationship with former President Trump, we expect the company to take share as peers slow zero-emissions investments and build increased long term cost leverage vs. competition,” Rusch said in the 52-page Oppenheimer note. To be sure, the analyst added that Tesla is also among the most at-risk stocks from any changes in the IRA’s $7,500 per vehicle incentive for new EV purchases. Tesla is down more than 7% this year, but the stock has bounced back this quarter, climbing 16.3% through Thursday thanks to enthusiasm over its advanced driver assistance technology. The market’s conviction that interest rates are headed lower soon has also given a lift to companies in the electric vehicle industry. TSLA 1Y mountain Tesla stock. Republic Services, a solid waste and recycling company, would be a “leading beneficiary of continued favorable corporate tax policy” under a Republican administration, Oppenheimer argued. For example, an Alternative Fuel Mixture Excise Tax Credit that gives solid waste companies a cash tax benefit for every gallon of diesel or gasoline replaced with compressed natural gas (CNG) or renewable natural gas (RNG) is set to expire on Dec. 21. Oppenheimer said that the credit has historically been renewed at “staggered dates with retroactive coverage,” and that Republic has modest exposure to RNG compared to rivals. Shares of Republic Services are up almost 25% this year. The average analyst’s price target as surveyed by FactSet implies potential upside of another 5% over the next year. Caterpillar , meanwhile, could be a leader among industrial stocks in the event of a Republican sweep. The Texas-based company is “the bellwether for industrial activity and we believe favorable accelerated depreciation, lower corporate taxes, and reshoring/domestic industrial policy support would drive renewed support for shares,” Owen said. “CAT also has significant revenue exposure to the traditional energy sector.”
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