Investing on Capitol Hill

08/22/2003 12:00 am EST

Focus:

"We work closely with the staff of Congressional Quarterly, which is an institutional research and intelligence group that helps us find companies that will benefit or be hurt by  changes in regulations, government policies, and government contracts," says Neil George. Here are some industries poised to benefit from decisions made on Capital Hill.

"In addition to our own research, we have a relationship with a group of people who help us out by tracking what’s happening in government and keeping an eye on some of the back room deals that are going on. We work with the staff of Congressional Quarterly , which provides intelligence for lobbyists, corporations, and other legislatures regarding what’s going on in various bills. They have reporters who spend all their time shadowing Congressmen and Senators and others in and around the Beltway. As a result of this relationship, we can consistently provide insight into what is happening on bills and legislation that may affect other companies.

"With that in mind, there are a few things happening which may benefit certain companies. One area where we see some positives is in the agriculture business. As you might be aware, genetically modified agricultural products has been a big part of the US farm industry. Yet, outside the US there has been a great deal of uproar over their acceptance, and in places there are bans on the importation of these goods from US producers. The principal ban has been from Europe. But it looks like the US is finally able to push open some doors to get them to be accepting of some genetically modified foods. There is a labeling issue, which will help to identify these products, but this deal–which we’ve been following for some time and is in the process of being finalized right now–will be very beneficial to some of the companies in the thick of this business.

"First and foremost, on the production side is Archer Daniels Midland (ADM NYSE), which has been sort of a laggard for quite some time. Another beneficiary is Bunge Ltd. of North America (BG NYSE), a global agribusiness with operations in grains and fertilizers, as well as retail food products such as flour and margarine. We also like Monsanto (MON NYSE), which is the final spin-off from the original company’s ill-fated ventures into pharmaceuticals and technology. However, the company’s core seed business and some of their other genetically-modified products and support services will be getting a boost. There has been concern over one of their major products, Round-Up, which is used to help farmers control pests that threaten their crops. There are concerns that the product is becoming somewhat less effective as immunities get built up. I spend an awful lot of time in Missouri–where they are headquartered and where there are a lot of farmers–and my understanding is that Round-Up 2 will meet some of these concerns.

"The agriculture market–and Archer Daniels in particular–will also benefit from the energy bill, which we expect will be passing. It has gone through the House and is now in conference. One part of the bill that we are certain will get through–because it has broad support by both parties–is a mandate to include a higher percentage of ethanol as part of our petroleum at the pump. Archer Daniels is the largest producer of ethanol in the US, and this will provide them with a fairly significant windfall once these new mandates get factored in.

"We also seen much discussion on media ownership. Many of you have seen the ruling, which allows companies to own more TV stations and print media, which was initiated by the FCC. We’ve seen a backlash from the public as well as several Congressmen and Senators, and people have been talking about a reversal of this ruling. Even though this is getting a lot of press, our sources say that this is not going to happen. They are not going to reverse the process. Therefore, some of the media companies will continue to be very attractive plays. My favorite is one that is profitable already and will only be more attractive as a takeover candidate. It is A.H. Belo Corporation (BLC NYSE). They own TV properties in some primary and secondary markets in Texas and Missouri, as well as print media. Even without this legislation, they are still a nice and steady performer.

"One other company I like for its operations–even though I may not like its products is Sturm Ruger (RGR NYSE). The company is a gun manufacturer. The firms in this industry have been under a great deal of pressure and class action suits. Municipalities and other parties have attached liability to gun manufacturers. Personally, I don’t own a gun and I am not encouraging gun ownership; but at the same time, I support some of the legislation that allows such ownership to occur. The company has very little debt, very strong cash, and a huge dividend yield. They will be getting a nice boost if liability immunity legislation is signed by the President, which we expect to happen in the not too distant future. In the meantime, while you hold this stock, you will get a nice fat, high single-digit dividend yield. The company has gobs of cash on its books. In addition it also has some other sidebar business including golf clubs."

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