Ouch! Things aren't going quite as planned in the Capitol. But nevermind, there is a silver lining to the cloud, from which you can profit.
The issue is that so far President Trump hasn't "drained the swamp" of Washington D.C.'s ways, as he promised to do. But you can take full advantage of the lack of reform by making some money for yourself. It is perfectly legal and relatively simple.
In the first place, target those public companies that spend the most on lobbying because they may get to influence policymakers more than those that don't, according to insiders.
"The usual way is that the one only people who get the look-see are those who use a high-priced lobbyist," says Dr. Pippa Malmgren, founder of DRPM Group, who worked in the George W. Bush White House. "It is kind of wrong."
But as investors, we need to deal with the world as it is, not as it should be. Those that lobby most intensively tend to have better-performing stocks, according to research.
"Portfolios of firms with the highest lobbying intensities significantly outperform their benchmarks in the three years following portfolio formation," states a 2014 paper titled "Corporate Lobbying and Firm Performance" by Hui Chen, David Parsley and Ya-Wen Yang, of the University of Zurich, Vanderbilt University and Wake Forest University.
"Lobbying is positively related to accounting and market measures of financial performance" on average, the paper continues.
The researchers discovered this by looking at lobbying spending by public companies "mainly" over the period 1998-2005 using data from Compustat. The firms that lobbied heavily raked in an additional 5.5% in stock returns "over the three years following portfolio formation," the report says.
Homegrown Analysis
Separately, I analyzed how the top lobbying spenders performed. The results were similar.
In 2013, the top publicly traded firms that lobbied were as follows: Northrop Grumman, Comcast, General Electric, AT&T, Alphabet, Boeing, Lockheed Martin, United Technologies, Verizon Communications and Exxon Mobil. The information was accessed via the OpenSecrets.org website.
I then looked at the performance of each stock over the next three years (2014 through 2016), constructed a portfolio with equal weights of each stock and looked at the combined gains. Without dividends, they rallied approximately 30% over the three-year period.
I chose the NYSE Composite Index as a benchmark to compare the results. The S&P 500 consists mostly of massive corporations that tend to spend more on lobbying than the average company, such as many of those in the composite index.
The result: $10,000 invested in the model portfolio would have outperformed $10,000 held in the index by more than 20 percentage points.
In 2016, the list of top lobbiers was similar. In comes Southern Company, Dow Chemical (which has now merged with DuPont) and FedEx. Out go Verizon, United Technologies, GE and Boeing. So those might be some to consider. Alternatively, wait until the data is complete for 2017, and take a look at that group.
