Where the Money Should Flow in the Clinton Era
One week from his inauguration, Bill Clinton and his advisers continue to ease away from many of the promises that helped win him the White House: a middle-class tax cut . . . a halving of the federal deficit . . . an economic stimulus program.
So it follows that the next casualties could be the so-called Clinton stocks--the infrastructure, environmental, technology and industrial issues that have run up since fall partly on expectations that Clinton’s policies would favor them.
If these stocks go down, will that be the last we’ll hear from them? Unlikely. A “Clinton portfolio” may seem like too obvious a concept to be sustainable, but in fact it represents the most important big-picture investment theme of the ‘90s, some Wall Streeters argue. Sometimes, what’s obvious is what works best.
Just as the ‘80s was a decade of conspicuous consumption in America, the ‘90s will be about investment, capital improvement and rebuilding. Clinton has set the tone, but in many ways he simply latched onto a theme that the nation was eager to embrace anyway, after the perceived failure of Reaganomics.
Laszlo Birinyi, who heads money management firm Birinyi Associates in New York, says he is amazed by how many of his peers are pooh-poohing the general idea of a Clinton portfolio. “They keep saying, ‘Now you want to move (your money) elsewhere,’ ” he says. But when asked what better stocks to own, the critics usually have no answer, he adds.
History offers powerful lessons in the significance of investing with the right theme for a given era. For example, in the early ‘80s there was no question what Ronald Reagan and the Congress of the day stood for: borrow-and-spend economics.
With the glorification of the consumer, the companies that made what we wanted to buy--food, drugs, clothing, housewares, cigarettes--became the stars of the early ‘80s and remained so to the end of the decade. The result was that their stocks were the ultimate buy-and-hold investments of the Reagan Era.
Tobacco company stocks, for example, gained an astounding 1,983% on average between 1979 and 1989, including dividends.
Meanwhile, many classic industrial companies found their products unwanted in the ‘80s and their businesses badly out of shape. Though many of them began to fix what ailed them late in the decade (the beginning of the restructuring wave), the stocks still turned in an absolutely dismal performance overall.
Indeed, machine-tool stocks actually declined 17% during the ‘80s, even counting dividends.
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Of course, Bill Clinton’s invest-in-America theme doesn’t necessarily mean that machine-tool stocks will be the tobacco issues of the ‘90s. Yet many Wall Street pros believe that infrastructure, environmental, technology and industrial stocks remain the smartest long-haul picks you can make today, because that’s where the money seems destined to go in this decade--with or without Clinton. The capital spending cycle is simply due to turn.
Even if you discount Clinton’s emphasis on those areas in the short term, Birinyi says, you’re still left with a compelling argument to stay with those stock groups. If one views 1993 simply as the beginning of a “standard vanilla economic recovery,” he says, it’s the basic industrial issues that always benefit the most in such periods.
It’s no coincidence, Birinyi says, that semiconductor stocks--one of the leading groups after the 1982 recession--also are leading the market higher today. So semiconductor giants such as Intel and Motorola, as well as such industrial plays as Dupont, Dow Chemical and Atlantic Richfield, are among Birinyi’s favorite stocks entering the Clinton Era.
Joe Barsky, who manages IDS Equity Plus stock mutual fund in Minneapolis, also uses previous classic economic recoveries as a guide to stock-picking for ‘93, with Clinton merely representing an extra push in the longer-term.
It’s true, Barsky says, that many of the industrial firms that he favors have yet to see the hoped-for pickup in sales and earnings, even in the improving economy of the fourth quarter. “But I think people are going to say, ‘Even though the (fourth-quarter) numbers look crummy, we know the economy is going to roll eventually,’ ” Barsky says.
His heavily industrial and technology portfolio includes such names as Microsoft, computer networker Novell, Air Products & Chemicals, lumber giant Weyerhaeuser and Goodyear.
Can those stocks really lead the ‘90s? Not all of them, to be sure. But if investment in fact is to the ‘90s what consumption was to the ‘80s, the “Clinton stocks” should get a far greater share of the rewards than the old consumer-stock leaders. If you’re placing long-term bets, to bet with a Clinton portfolio seems far less risky than a bet against it.
A ‘Clinton Portfolio’: The 1980s in Reverse? Is it too late to buy stocks that would benefit from President-elect Clinton’s emphasis on investment and infrastructure? Hardly, some analysts say. The consumption-oriented stocks that dominated the ‘80s were leaders for virtually the entire decade--as their returns attest: Consumer Stocks Led the ‘80s . . . Stock group / 1979-’89 return Tobacco: +1,983% Clothing: +1,430% Housewares: +1,303% Specialty retail: +1,162% Soft drinks: +960% . . . While Industrial Issues Lagged Stock group / 1979-’89 return Engineering: +75% Oil/gas drilling: +38% Steel: +33% Metals: +30% Machine tools: -17% Returns shown include price change and dividends. Source: Smith Barney, Harris Upham & Co., using Standard & Poor’s indexes
