Where to invest, or not, post-election

Drugmakers, defense stocks sink after Democrat gains; oil, stem cells, Fannie and Freddie all rally.

By Chris Isidore and David Ellis, CNNMoney.com staff writers

NEW YORK (CNNMoney.com) -- The winners and losers from the mid-term elections weren't limited to the candidates on the ballots.

They're also from businesses sectors as varied as biotech and big oil, from major drug companies to alternative energy firms, and from retail giants and defense contractors to government-sponsored mortgage financiers.

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Research using stem cells to develop new cures and treatments got a lift Wednesday after voters in Missouri narrowly approved a measure to protect embryonic stem cell research, specifically legalizing all stem cell research and therapies consistent with federal law.

There could be more gains for some biotech companies doing work in the field. But there could also be some selling, in spite of the measure's approval, since stocks such as Geron Corp. (Charts) have jumped in the five weeks leading up to the election. Geron added another 2.5 percent in early trading Wednesday. Stemcells Inc. jumped 7.5 percent.

Another innovative technology sector, alternative energy, could take a hit after 55 percent of voters in California rejected a proposal to create a $4 billion fund to slash oil consumption by 25 percent via a tax on oil to fund alternative energy.

Shares of Exxon Mobil (Charts) and other big oil producers rallied Wednesday after the defeat of the California measure.

But while Big Oil won the California vote, it could be hurt by Democrats capturing the House, with a chance as well of winning control of the Senate.

Fred Dickson, chief market analyst at D.A. Davidson & Co., says that with Democrats taking Congress, he expects more regulation and a slowdown in the robust growth the industry has experienced recently. Democrats could hamper oil exploration efforts, he said, and try to renegotiate leases favorable to oil companies.

There could also be increased scrutiny about soaring profits at big oil and gas firms, such as Exxon Mobil, which has seen a string of record or near-record profits in recent quarters. Some Democrats have called for a windfall profit tax on oil companies.

Big Pharma is another sector that could come under pressure. Numerous Democrats have campaigned for Medicare to negotiate directly with drugmakers over drug prices, which could squeeze profit margins at companies such as Pfizer (Charts). The world's No. 1 drug company's shares fell about 1.5 percent in early trading.

Voters also gave a boost to efforts to raise the minimum wage. Voters in six states passed measures to raise the lowest pay level in their own states, and Democratic leaders in the House vowed that an increase in the national minimum wage will be one of the first pieces of legislation they intend to pass when they take control of the chamber in January.

But while some people say a higher minimum wage could hurt some big retailers by boosting their labor costs, analysts argue it could actually give a lift to discounters like Wal-Mart Stores (Charts), which generally pays its workers above minimum wage. The world's largest retailer came out in favor of a higher minimum wage a year ago because such a move would put more money in the pockets of its core customers.

But Wal-Mart shares edged lower in early trading, with some market analysts expressing concern that the election might make Congress more likely to approve trade sanctions on Chinese imports, a key source of goods for the chain.

The war in Iraq was a key issue in the election Tuesday, helping to carry the Democrats to victory. But few analysts expect the Democratic Congress to make significant cuts in defense spending, as it is a decision of the Bush administration, not Congress, as to when to withdraw troops from the country.

Still, shares of Lockheed Martin (down $1.11 to $86.38, Charts) and other big defense contractors like General Dynamics and Raytheon, all sank more than 1 percent in morning trading.

One defense contractor that could be in for a rough time is Halliburton (up $0.02 to $31.72, Charts), the company formerly run by Vice President Dick Cheney. The company that provides services to U.S. troops in Iraq has been the subject of harsh criticism by Democrats and could be the focus of Congressional hearings. Shares of Halliburton opened lower but recovered later the morning.

Government-sponsored firms, such as mortgage companies Freddie Mac and Fannie Mae, could get a lift from the election - and the stocks rallied in morning trading.

Republicans in Congress have slammed both companies' accounting and business practices, and some analysts say a Democratic Congress will be less harsh on the firms, which traditionally have ties to that party.

Uncertain vote chips away at stocks

America votes 2006: A CNN.com special report Top of page

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