(MONEY Magazine) – RIGHT BEFORE THE 1992 PRESIDENTIAL ELECTION, this column named the stocks we believed would benefit most from a Clinton victory. Our picks included waste-management businesses such as WMX Technologies, construction equipment firms such as Caterpillar, and companies that help control health-care costs, such as Humana.

We were right that those stock groups would shine. Over a two-year period, they outperformed the market by 15 percentage points. Their share prices declined, however, in the six months immediately following Clinton's election (see the chart at right).

The lesson is that to pick stocks successfully based on political trends, you have to take a long-term view. In that spirit, here's how we see the 1996 outlook shaping up. But first, two caveats: Don't expect today's "Clinton stocks" to be the same stocks they were in 1992, and don't ignore the impact of congressional elections. Here's a look at the three most likely election outcomes:

A Republican wins the Presidency, and Congress remains Republican. "A flat tax is one of the key Republican goals," says political analyst Charles A. Gabriel at the Arlington, Va. office of Prudential Securities. He figures it would raise after-tax returns for most stocks and bonds and therefore boost prices. The one loser: muni bonds, whose tax exemption on interest would become less valuable with a flat tax.

Gabriel thinks two industries also would benefit from a Republican sweep. The likely repeal of the 1933 Glass-Steagall Act would allow banks to buy brokerages. Probable targets: Alex. Brown (ticker symbol: AB; recently traded on the New York Stock Exchange at $43.75 with a 1.8% yield) and A.G. Edwards (AGE; NYSE, $25.25; 2.5%). In addition, the Republicans want to beef up the National Missile Defense system. "That's the new name for Star Wars," Gabriel explains. Likely beneficiaries: Loral (LOR; NYSE, $35; 0.7%) and Raytheon (RTN; NYSE, $45; 1.7%).

Clinton is re-elected, and Democrats win back the House. Investors would worry that higher government spending would revive inflation. As a result, interest rates could turn up. "Bonds would suffer, and so would interest-rate-sensitive stocks," says Peter Canelo, chief investment strategist at NatWest Securities in New York City. But energy and natural-resources stocks could do well, he says, because they're inflation hedges.

Clinton is re-elected, and Congress remains Republican. The most likely scenario, though, is more of the same. In that case, interest rates would edge lower, boosting bond prices. However, further budget reductions could slow the economy, undercutting many stocks.

In fact, the Comeback Kid's re-election could be mixed news for share prices no matter which party wins the House. "Clinton loves to compare himself with Harry Truman," says Hugh A. Johnson, chief investment officer at First Albany in Albany, N.Y. "And look at how the stock market performed after Truman's 1948 re-election."

Share prices rose early in that election year and then declined 16% between June and mid-1949. That's not too far from Money's 1996-97 stock market forecast. Investors can take heart, however, that in late '49, a four-year bull market began that boosted the Dow more than 50%.

ALL STOCK DATA AS OF DEC.11

Wall Street editor Michael Sivy is a chartered financial analyst and a former Wall Street research director.