We have become used to, if not totally numb to, the gridlock in Washington D.C. But perhaps we might finally see some easing there. Both sides will have a reason to actually do their jobs. The GOP will be motivated by making good on some campaign promises and proving to the constituency that they can get things done. Democrats will want to have a strong, or at the very least, a strengthening economy going into the 2016 Presidential elections.
I have been considering some plays given the GOP win in the Senate. Remember, nothing actually has to happen in Congress for any of my plays to work. There just needs to be the perception that something accommodative will happen and a stock will rally in anticipation. .
For example, the Republican Senate victory might pave the way for expansion of the controversial Keystone Pipeline connecting Canadian oil-sand producers to U.S. refiners and the Gulf of Mexico. This would benefit energy companies with oil-sands exposure, such as Canadian Natural Resources (CNQ), Canadian Oil Sands (COS), and Cenovus Energy (CVE).
It would also benefit U.S. refiners like Valero (VLO) and Philips 66 (PSX), because of their ability to process the low-grade the Canadian oil. Restrictions on liquid natural gas (LNG) exports may also be eased following a Republican Senate victory. That would benefit U.S. domestic natural gas producers, of course.
But the play with bigger upside might be coal producers. That’s because greater LNG exports would take natural gas off the U.S. market and lift natural gas prices. This would put a bid under coal, an alternative to natural gas at power plants. A Republican Senate victory may provide regulatory relief for coal producers, which would also boost their stocks. One way to take advantage of this opportunity would be to buy a long call vertical in Cliffs Natural Resources (CLF). Buy the Nov 11.5/13.5 call spread for $0.40.
