Republican wins seen aiding medical device, pipeline stocks

Medical device makers and Calgary- based pipeline operator TransCanada Corp. are among companies with the biggest potential for stock gains after the Republicans prevailed in midterm U.S. elections.

Boston Scientific Corp. is poised to climb with Republican victories in the Senate amid speculation the party will seek to repeal an excise tax on pacemakers and defibrillators, said Dan Clifton, head of policy research at Strategas Research Partners in Washington. Stryker Corp. rose in German trading while U.K. rival Smith & Nephew gained in London. TransCanada may benefit as Democratic losses enhance prospects for a legislative vote on its Keystone XL project.

Republicans roared back in the midterm elections on Tuesday, capturing control of the Senate from Democrats, holding on in crucial governor races and keeping their majority in the U.S. House. While results had probably already started to influence share prices, Clifton says more movement is still possible.

"We'd argue that while most people believe the Republicans are going to take over the Senate, they haven't put money to work in that and it's not priced in." Clifton said before the result of the vote was known. "If Republicans take over the Senate they'll hold a vote to repeal the tax on medical devices. They'll also open more domestic pipeline construction."

The Republican victories may give companies such as Boston Scientific support to pressure President Barack Obama to eliminate the excise levy. Another device maker with the potential to benefit is St. Paul, Minnesota-based St. Jude Medical Inc, according to Jared Woodard, a senior equity derivatives strategist at BGC Partners LP in New York.

Hospital Shares

The wins sent hospital stocks including Community Health Systems Inc., Tenet Healthcare Corp. and LifePoint Hospitals Inc. more than 2 percent lower yesterday. Senator Ted Cruz, a Tea Party-backed Texas Republican, said this week that his colleagues must fight Obama at every turn. Republicans should "pursue every means possible to repeal Obamacare," Cruz told the Washington Post on Nov. 2.

The 2.3 percent tax, part of the 2010 Affordable Care Act, is expected to bring in $29 billion through 2022, according to the House of Representatives' Ways and Means Committee.

Boston Scientific, based in Marlborough, Massachusetts, has gained 10 percent in 2014, trailing the S&P 500 Health Care Index's 21 percent advance. The stock has climbed on 10 of the last 12 days, adding 17 percent.

Predicting Returns

Predicting stock returns based on an event such as an election may work for traders, but it doesn't always make sense for longer-term investors, said Marshall Front, chief investment officer at Front Barnett Associates LLC in Chicago.

"There are people who will try to position themselves ahead of the election and try to capitalize on what will be easiest to accomplish with a Republican Congress and a president who's more willing to compromise," Front said by phone before results were known. "We're much more focused on the economy and corporate profits."

In the biggest prize of the night - control of the Senate - Republicans were pushed over the edge with Joni Ernst's victory in Iowa, giving her party its first majority in nearly a decade after picking up six seats Tuesday night. Republicans also clinched victories in North Carolina, Wisconsin, Florida and Illinois.

'Eventually Win'

Victories by Republicans Ernst and Cory Gardner in Colorado bolsters support for the Keystone pipeline, Strategas Research's Clifton said.

"Republicans have to figure out what their priorities are, and it seems that Keystone is where they'll make that fight and they'll eventually win," he said.

TransCanada has been waiting since 2008 for a U.S. decision on the pipeline that would carry crude from Alberta's oil sands across the border to Gulf Coast refineries. Its Toronto-listed shares have climbed 14 percent this year, almost three times the gain in Canada's S&P/TSX Composite Index.

Environmental groups oppose Keystone XL, saying the oil- sands production process creates more carbon-dioxide emissions than regular oil and the pipelines pose the threat of spills. President Obama initially rejected Keystone XL in 2012 over risks tied to its path in Nebraska.

TransCanada subsequently split up the project, building the southern portion first and refiling for approval for the northern leg, which would cross the border and thus requires U.S. approval, with an alternate route in Nebraska. The U.S. State Department has delayed its ruling as a Nebraska court decides whether a state regulator should review the line's path.

Earlier this year, pipeline supporters said they were close to securing support in the Senate to compel a vote.

Canadian oil producers with exposure in the pipeline's region, such as Canadian Oil Sands Ltd. and Canadian Natural Resources Ltd., will be affected by shifts in policy, said Vincent Piazza, a senior analyst at Bloomberg Intelligence.

Free-trade agreements may be easier to pass with the Republican victory and could have implications for exporters such as Intel Corp. and Ford Motor Co., according to Bloomberg Intelligence.

Free Trade

"I don't think there's fundamental opposition to that," Christopher Beck, senior vice president at Delaware Investments, said by phone. "That's going to be a good thing for anyone who wants to trade with anyone in the Far East."

Lockheed Martin Corp. gained 0.6 percent in German trading today. Companies such as defense contractors and security firms may get more funding from a Republican-controlled Congress, according to Brian Friel, an analyst at Bloomberg Intelligence in Washington.

To contact the reporter on this story: Oliver Renick in New York at orenick2bloomberg.net To contact the editors responsible for this story: Chris Nagi at chrisnagibloomberg.net John McCluskey, Tom Redmond