4 Stocks for Congressional Gridlock

It's tough to watch the news today without hearing about the dysfunction in Congress. With the recent government shutdown, little action on passing major legislation, and a near technical default, people of all political affiliations are noticing the problems in Washington. But this article isn't about Democrats, Republicans, or any other political party; it's about investing and four ways to profit from the gridlock.

Failing infrastructure
The disagreement in Congress has managed to delay a new national infrastructure policy. And this problem is showing up in many parts of our infrastructure system. As a whole, the American Society of Engineers gives the U.S. a "D+" rating for infrastructure. And for roads, its even worse, as the nation earns a solid "D" grade.

But there is a way to capitalize on this infrastructure problem. Even as roads remain substandard, people still need to drive and will continue to do so.

And all this driving on damaged roads takes a toll on car tires. That's good news for Goodyear Tire & Rubber (NASDAQ: GT  ) , which stands to see more sales if more tires are damaged on roads, as consumers will still need to replace them.

The upside for Goodyear even goes beyond additional sales from road damage. A rebound in the auto industry means more auto sales as consumers seek to modernize what is the oldest fleet of cars ever on the road. Since new cars tend to come with new tires, accelerating car sales form another positive for Goodyear.

Failing legislation
After the tragic Newtown shooting, there was a renewed call for gun-control measures at the federal level. Despite the support of the vast majority of the American public, the bill that would have introduced additional firearms restrictions failed to become law.

It's tough to see how there would be a time where a gun-control bill would have a better chance of passing than right after the Newtown tragedy. Whether you were in favor of the bill itself, its failure to pass and the large uphill battle any such legislation would face in the future is good for firearms manufacturers such as Smith & Wesson (NASDAQ: SWHC  ) .

Having built a business around the sales of firearms, Smith & Wesson could be hurt if Congress were to completely overhaul federal gun laws by instituting additional firearms restrictions. In this way, Congressional inaction prevents the passage of financially damaging legislation.

GSE delay
Although the nation's largest banks have been fully privatized again, government-sponsored enterprises Fannie Mae (NASDAQOTCBB: FNMA  ) and Freddie Mac (NASDAQOTCBB: FMCC  ) remain under tight government control. Ever since the Sweep Amendment was put in place, Fannie and Freddie's profits have been flowing to the Treasury, giving them no chance of escaping from government control.

The positions of various members of Congress seem to center on a plan to wind down the GSEs. The problem is, they can't agree on how to do it. After all, winding down and replacing two multitrillion-dollar enterprises that play a critical role in the national mortgage market is no easy task, especially in a Congress that's in an uncooperative mood to begin with.

The hope for the GSEs' shareholders lies in court, where Perry Capital is challenging the constitutionality of the Sweep Amendment and seeking to remove it, thus allowing Fannie and Freddie to begin using their profits themselves.

Since lawsuits can take a long time to play out, Fannie and Freddie shareholders need Congress to not act. For Fannie and Freddie, Congressional gridlock is essential to their very existence.

Congressional problems
Plenty has been said about how the problems in Congress are harmful to the economy. But these four companies can profit from the dysfunction because of their businesses or sales structures.

Investors who believe Congress will remain a polarized body in which getting things accomplished is markedly difficult should see whether these stocks are right for them.

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  • Report this Comment On November 03, 2013, at 11:24 AM, peckbill wrote:

    Congress (Democrats and Republicans alike) need to get a handle on government operations and gain support of the American people. They need a few simple laws to fix a few important items before they try any big items like a Constitutional Amendment, 1) they need to read the Ethics Reform Act of 1989 and undo any reference that campaign fund contributions are nothing more than donations and therefore can be put into a individual Congressmen/women Leadership PAC (slush fund), 2) reinforce legislation to the IRS that the word “exclusively” regarding non-profit organizations is to be enforced as written and is not subject to interpretation, 3)add the following to any and all oaths of office for government hires, “I do solemnly swear that I will not lie to, steal from nor cheat the people I am elected to serve so long as I remain in this elected office.”, 4) make provisions to reimburse the Social Security Fund the 736 billion borrowed years ago and provide that no funds may be borrowed or re-aligned from that fund in the future. Accomplish this within a five (5) year period, 5) discontinue requiring the Postal Service to pay future benefits and treat the Postal Service as a normal business, 6) restrict foreign aid as long as programs within the United States of America, controlled by government spending, are not fully funded,7) approve legislation that will reduce and control costs of home and vehicle insurances so the lower and middle income individuals and families can buy a home and have a better vehicle to drive, 8) insider trading must be prohibited by members of Congress, their family and employees, and 9) members of Congress must not profit from any government subsidy deriving from any federal law approved by Congress.

    These are small things that can be done by House and Senate votes (it must be Democrats and Republicans working together) and a Presidential signature. These things are all close to every taxpayer and these are the items that need attention now.

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