Even though we cannot definitively tell who the next president of the USA will be, one thing is certain – the House and Senate are going to be divided. This is going to make it a lot harder for Biden (the most likely candidate) to put his foot down and implement his policies.
Markets globally and the ASX have reacted positively towards a Biden win though. The ASX 200 and All Ordinaries were trading higher this morning.
A Biden win without a Democratic House means it is going to be that much more difficult to pass bills – especially the corporate tax increase that Biden is desperate to implement. This looks like it may have had an effect on the stock market, as the S&P 500 and the ASX surged today.
The stock markets have a mind of its own, they say. In the short-term, yes. In the long term, however, it relies more on the fundamental factors of a company that will determine the stock price. With a divided Congress, policies such as increase in regulations for tech stocks, increase in taxes become hard to implement. One thing that is certain however, is a stimulus package that will arrive to boost certain sectors and industries to revitalise the economy. Below are 3 stocks from our portfolios that have exposure to the USA through its revenue generation and will benefit on the long-term:
There will certainly be increased spending in the healthcare sector given how the USA has managed the novel coronavirus. The system needs to be improved and the Democrats have long talked about it.
The medical equipment manufacturer’s business model has benefitted from the pandemic. Tele-medicine and out-of-hospital care are markets and industries that will define healthcare in a post pandemic world. ResMed’s SaaS product that enables healthcare providers to better care for their patients and measure results is already seeing high growth rates. Our estimates suggest that the growth will be stronger in the years to come.
During the pandemic, demand for ventilators has soared and ResMed has increased its production capacity by 3.5x during the year. The market for its other business segment – sleep apnea care is also huge and research suggests that it will take off as health and wellness becomes a more important part of people’s lives in a post pandemic world with altered consumer behaviours.
The firm has immense strength in its balance sheet to weather any storm during times of uncertainty and come out on top in the long-term.
Infrastructure spending is absolutely vital during economic downturns as it boosts real growth and has the potential to create a lot of jobs. The next stimulus, irrespective of who is in office would very likely look to boost infrastructure.
Transurban group is positioned to benefit not just from the stimulus package in Australia, but also from the USA. The firm has multiple projects that are worth $19 billion in its pipeline in both countries and specifically 3 projects in the USA. As the country recovers from the pandemic and the restrictions are lifted, Transurban is also estimated to benefit from increased traffic on its existing infrastructures. The firm also pays investors dividends to make things sweeter for a long-term strategy.
Another area that will certainly see a boost is consumer spending. The government has to and will do everything in their power to enable Americans to spend more. Consumer spending has fallen by 33% in Q2 of FY2021 and e-commerce sales are down 3.6% in Q2. Consumer spending makes up for more than 70% of the US GDP.
Afterpay has already done well in the USA during the pandemic when sales are to have taken a hit. In a post pandemic world where economies are bouncing back, Consumer spending has to lead the way and Afterpay is only getting bigger and stronger in the American market.
We estimate Afterpay to grow further as more businesses are going online and their customer growth and retention metrics certainly suggest that shoppers love their service and will keep coming back to use it. Afterpay in the long-term will definitely benefit from the USA’s recovery irrespective of who comes into power during the election.
While there are certainly a lot of factors to be considered when trying to take advantage of the US election’s effect on the ASX, in this blog we have outlined the firms that stand to benefit from the recovery of the US economy in the long-term as well as the policies that would have to be implemented irrespective of who comes into office. Healthcare, Infrastructure and Consumer spending are absolutely vital to the US economy and a stimulus package is necessary irrespective of who wins the election. A Biden win may mean that the package may be bigger as predicted by the expert Investment Banking institution, and a divided Congress will certainly make it hard to implement some of the negatives of a Biden win such as increasing corporate taxes.