Barack Obama and Mitt Romney dole out a lot of stock tips -- just not in their stump speeches.
Research shows that the stocks of the winning candidate's biggest corporate donors tend to get a postelection boost. For instance, Goldman Sachs, whose executives and employees gave $1 million to the Obama campaign in 2008 versus $240,000 to McCain, saw its share price gain 102% in 2009. Meanwhile, AT&T, whose workers gave $200,000 to McCain and weren't a top-50 contributor to the Obama campaign, gained 4% that year, compared with a 26% gain by the S&P 500-stock index. (The actual companies don't contribute, but researchers group together donations from that company's political action committees with contributions from employees and their family members.)
Whether the big donors' success is due to added clout stemming from their contributions, policies favoring their businesses, or just good business sense, is unclear, experts say, but the overall trend iswell documented. A report released last fall by researchers at the University of Innsbruck in Austria looked at the stock market performance of the top contributors for U.S. presidential elections from 1992 to 2004 and found that a hypothetical portfolio of the 30 public companies that made a bigger percentage of their campaign contributions in any given election during that period would have outperformed the S&P 500 by an average of more than 6 percentage points during the first year after an election.
That stock advantage also appeared to hold true for the top contributors in the 2008 election. A look at 10 publicly tradedcompanies whose employees gave a higher percentage of their contributions to Barack Obama, including tech giants Microsoft and Google and media company Time Warner, outperformed the S&P 500 by an average of 17.6 percentage points in 2009. In contrast, the 10 companies among John McCain's top contributors who donated more heavily to him than Obama, including AT&T, Bank of New York Mellon and American Financial Group, underperformed the S&P 500 by an average of 2.4 percentage points in 2009.
Investors may be able to capitalize on this phenomenon, pros say -- but only to a point. Randy Warren, a financial adviser near Philadelphia, doesn't make bets strictly based on campaign fundraising lists, but he does consider which sectors might gain from a president's policies when choosing stocks -- a strategy that likely points to some of that candidate's top donors. "It wouldn't be surprising if the companies that are best positioned to benefit from those policies are also top contributors," he says.
For instance, Warren says, he might add health-care stocks if Obama is reelected, because the president's Affordable Care Act is expected to increase health-care spending -- and boost profits for medical companies -- over the next several years. Romney, meanwhile, vows to repeal the measure. The health-care industry is backing Obama more heavily, donating nearly $9 million to his campaign so far this election, compared with $6 million in contributions for Romney, according to the Center for Responsive Politics, a nonpartisan, nonprofit research groupthat tracks money in U.S. politics.
Indeed, companies often back candidates with views and policies they believe will be favorable for their industry, says Nathan Gonzales, deputy editor of the Rothenberg Political Report, a nonpartisan newsletter that covers campaigns and elections. Others will back the candidate they feel is most likely to win, sometimes switching between Democrats and Republicans depending on the election, he says.
In the 2012 race, the corporate alliances have shifted. Many of the financial firms that backed Obama in 2008 are now putting their weight behind Romney, with such firms giving the Republican more thandouble what they've contributed to Obama so far this election cycle. Obama has instead won over a greater share of the contributions from the health-care, media and legal industries, according to the Center for Responsive Politics. Romney, on the other hand, is drawing money from agribusiness, energy and natural resource companies.
But before adjusting one's portfolio on Election Day, advisers say it's wise to consider how much access and how much clout the donors may have with the new president. Analysts note some presidents have been better than others at schmoozing with top donors at fundraisers, dinners and other events. As the New Yorker recently reported, Bill Clinton regularly called up top donors when he knew he would be in their area, while President Obama has a reputation for not prioritizing meetings with some of his wealthiest donors.
And aside from political donations, investors may want to focus more on a company's fundamentals, including sales and earnings growth, says Warren. Investors should also realize that a number of other factors could have a greater impact over a stock's performance than where that company ranked as a campaign donor, including economic growth, consumer spending and broader stock market trends, he says.
Analysts also point out that the biggest companies with the most resources will often make equally hefty contributions to both presidential candidates: Romney and Obama currently share 14 donorsamong their top 50 contributors. Obama and McCain shared 21 top donors in 2008. "It doesn't help an industry to antagonize the party in power," says Gonzales. Those companies that give the most overall even outperformed those that gave the most to the winning candidate, according to the University of Innsbruckstudy. A hypothetical portfolio of the 30 stocks that made the largest total contribution, divided by market capitalization, would have beaten the S&P 500 by 15.5%.
Here is a look at the publicly traded companies among this year's top campaign donors who have so far given a greater share of their contributions to one candidate:
Obama's Top Public Donors:
Microsoft Corp -- $443,748
Google Inc -- $357,382
Comcast Corp -- $235,037
Time Warner -- $230,088
IBM Corp -- $147,271
Romney's Top Public Donors:
Goldman Sachs -- $676,080
JPMorgan Chase -- $522,799
Morgan Stanley -- $518,897
Bank of America -- $510,728
Credit Suisse Group -- $427,560