What President Biden’s Executive Orders Mean for Your Portfolio

The White House with waving American flag

Joe Biden has signed a flurry of executive orders since taking office last month. A few of them might affect your portfolio. Here are four.

Through his first few weeks in office, President Joe Biden is on pace to set the record for most executive orders signed by any president in his first 30 days in office. Given the combination of partisan bickering and gridlock in Washington, it should come as no surprise that this administration is ruling by fiat, much like the administrations that came before it. How has the market responded to expectations for President Biden’s agenda?

Very positively, broadly speaking. Market conditions seem to be pricing in expectations for further stimulus and persistent low interest rates, and much of the feared regulatory pressure that a unified Democratic government could potentially impose is being proactively adopted by companies making significant investments in green tech, such as Ford (F), and General Motors (GM) announcing their intentions to pivot away from gas-powered vehicles in the years to come. Couple the inevitability of growth in green tech—the future rarely asks permission of the past or present before making old tech obsolete (just ask any typewriter repairmen you may know)—with the possibility that the economy will spring back to life when the pandemic mercifully wanes, and you’ll find broad (if reticent) bullishness despite historically high valuations.

With the flurry of executive orders emanating from the White House, what do any of them mean for you and your portfolio? For the most part, nothing. But there are four that are likely to have specific investing consequences.

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Executive Order #13990: Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis

This order, which gained attention because it revoked permitting for the Keystone XL pipeline, has become somewhat of a red herring, at least for TC Energy (TRP), the company that operated the Keystone XL. Analysts remain generally bullish on this company (which has been range-bound since bouncing off March lows) because, as significant of a news story as it was, the Keystone XL pipeline is a minor piece of the puzzle.

TC Energy operates tens of thousands of miles of gas pipeline and thousands of miles of oil pipeline and the transition from fossil fuels to renewables will take decades, not years. (Did you know the average car on the road is 12 years old? That means we’ve probably got 30 years of gas-powered vehicles still ahead of us, at least if we use GM’s proposed timeline.) The combination of a share price that trades at a relatively low P/E ratio with a high dividend yield (just shy of 6%) could signal that investors are seeing the noise and not the value.

Executive Order #13997: Improving and Expanding Access to Care and Treatments for Covid-19

Tucked into this order directing the Secretary of Health and Human Services, as well as assorted agencies, to expand access to and improve distribution of Covid-related health services, is a specific dictum that places added emphasis on supporting research and care in rural hospitals. Although recent studies have found that as many as 20% of rural hospitals are financially unstable, there does seem to be consensus that improving rural healthcare availability will benefit red and blue states alike. Should that be the case, Community Health Systems (CYH) operates around 85 predominantly rural hospitals and has been moving higher since the election, with breaks to consolidate gains.

Alternatively, if you believe that broader public health spending is on the horizon, and aren’t looking for concentrated exposure to rural providers, there are a wide variety of investment alternatives such as the iShares U.S. Healthcare Provider ETF (IHF).

Executive Order #14005: Ensuring the Future Is Made in All of America by All of America’s Workers

This order, which reasserts procurement preferences for American-made materials and manufactured products, could bode well for small- and mid-sized manufacturers and the domestic steel industry—especially if infrastructure investment remains a priority in Washington (and should they take action on it).

One company in particular, recommended by Cabot’s Mike Cintolo in a recent issue of Cabot Top Ten Trader, is Cleveland-Cliffs (CLF).

Mike wrote about CLF at the end of January, saying, “Cleveland-Cliffs, founded in 1847, is the largest and oldest independent iron ore mining company in the U.S. The company is a major supplier of iron ore pellets to the North American steel making industry. In March 2020, Cleveland-Cliffs completed its acquisition of AK Steel, a leading producer of flat-rolled carbon, stainless and electrical steel products, primarily for the automotive, infrastructure, and manufacturing markets. Also last year, Cleveland-Cliffs closed its acquisition of ArcelorMittal USA, effectively boosting its iron ore pellet supply capacity to 28 million tons, up from 20 million previously, and increases inter-company sales of pellets from 45% to 90%. The combination of these two deals to buy out its largest customers should lower the volatility of the company’s earnings and it makes Cleveland-Cliffs a vertically-integrated powerhouse in the U.S. steel industry.”

For more of Mike’s insight, including specific trading strategies and access to Top Ten Trader, click here.

Executive Order #14006: Reforming Our Incarceration System to Eliminate the Use of Privately Operated Criminal Detention Facilities

Unlike some of the other Executive Orders, which set out a general preference or anticipated planning for federal spending, this order is fairly cut and dry: “Contracts with Privately Operated Criminal Detention Facilities. The Attorney General shall not renew Department of Justice contracts with privately operated criminal detention facilities, as consistent with applicable law.”

The largest publicly traded private prison operators in the U.S. (CoreCivic (CXW) and The GEO Group (GEO)) are both trading near five-year lows, significantly below where they were trading even in March. Between the current divisive dialogue around incarceration rates and police practices, non-renewal of federal contracts, and the possibility of federal decriminalization of marijuana with associated sentence commutation (meaning fewer private prison beds needed for certain marijuana offenders), stay away.

Timothy Lutts

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