With midterm elections underway, investors are waiting to see if and how the results could weigh on stocks — and which names will outperform. The market expects Republicans to at least gain control of the House, rising for a third straight day on Tuesday. RBC’s head of US equity strategy, Lori Calvasina, believes there could be a meeting if Republicans gain a majority in one or both houses of Congress. How much of one depends on what happens. The gains will be modest if the GOP wins only the House, but will be larger if it also wins the Senate, she wrote in a memo Monday. A shift to Republican control of Congress will affect some parts of the markets and some individual stocks more than others. First, it would likely mean higher defense spending, Morgan Stanley analyst Kristine Liwag wrote in a note on Tuesday. That would be bullish for defense contractors like Lockheed Martin, which hit a record high on Tuesday. But a Democrat in the White House and a GOP-controlled Congress could cause political crisis and delays in finalizing the defense budget for fiscal year 2023, Liwag warned. Then there are items on the Democratic agenda, such as further controls on drug prices, tax increases, energy taxes, Medicare for All and legislation affecting “sin” industries such as prisons and tobacco that will fall by the wayside if Republicans sweep Congress, according to Strategas . The firm uses potential legislative changes to create Republican and Democratic sweep portfolios, which identify investments with the most to gain or lose based on election results. Meanwhile, RBC believes communications services, energy and industrials are likely to benefit from GOP control of one or both chambers of Congress, largely because of what it would mean for government regulation. To determine which stocks might outperform in the event of a GOP victory, CNBC Pro screened for names that analysts like in both RBC’s sectors and Strategas’ Republican sweep portfolio. At least 60% of analysts covering the stock must rate it a buy. The shares must also have potential upside of at least 20%, based on the average analyst price target, according to FactSet. Here is the list of names within RBC’s sectors. Of those on the list, midstream energy infrastructure company Targa Resources has the largest percentage of buy ratings from analysts covering the stock. Shares are up more than 36% year-to-date and have another 30% upside to the average analyst price target, according to FactSet. Alaska Air, on the other hand, has lost about 13% so far this year. The airline has 38% upside to the average analyst price target, FactSet data show. About 84% of analysts covering the stock are a buy. Alaska Air recently reported third-quarter earnings that beat analysts’ expectations due to a busy travel season. While the technology sector has been hit hard this year, Alphabet and Match Group are analysts’ favorites within the communications services group. Google parent Alphabet is down about 38% year-to-date, but has nearly 45% upside to the average analyst price target. About 75% of analysts covering the stock are a buy. Earlier this month, Alphabet had its worst day since March 2020 after it reported an earnings loss and slowing growth. Match has lost more than 65% so far this year, but has 50% upside to the average analyst price target, according to FactSet. Of the analysts who cover the stock, 65% consider it a buy. The online dating company recently posted higher-than-expected revenue in the third quarter. Morgan Stanley is among the bullish on Match. “Self-help story, sequential acceleration and several upside drivers are set to be one of the best ’23 stories in our space with compelling valuation, albeit with macro uncertainty,” Morgan Stanley said in a note last week. To Strategas’ political stock list, CNBC Pro added an additional screening of stocks that have at least seven analysts covering them, as some on the list attract only sparse coverage. Monolithic Power Systems has the largest percentage of buy ratings from analysts covering the stock, according to FactSet. The stock is down about 28% year-to-date, but has 27% upside to the average analyst price target. Strategas put Monolithic Power Systems into its Republican sweep portfolio because it believes the semiconductor company will benefit from less chance of corporate tax hikes. Two energy names in the portfolio, Cheniere Energy and Enterprise Products Partners, have more than 20% upside to their average analyst price targets. About 81% of analysts rate Chenière a buy, while 62% have a buy rating on Enterprise Products. “We believe the Democrats’ clean energy agenda actually benefits fossil fuels. But a Republican sweep helps fossil fuel distribution and transportation (pipeline, export, etc.),” Strategas wrote in a September note outlining its portfolios. Another name poised to benefit is SoFi Technologies because Republicans are unlikely to favor student loan forgiveness, Strategas said. The fintech company’s stock, down 67% so far this year, has faced headwinds such as the moratorium on student loan payments and President Joe Biden’s student loan forgiveness program. That program is now on hold as Republicans challenge it in court. SoFi has 55% upside to the average analyst price target, with 60% of analysts covering the stock rating it a buy, according to FactSet. – Michael Bloom contributed reporting.
Analysts love these stocks, which could gain after a GOP midterm victory