Evolution has hardwired us to hate uncertainty. We have a preference for predictable outcomes and the 18 May federal election isn't going to be one. Until then, you can expect plenty of wobble and bounce in stocks as the market digests the last-minute flurry of promises from Scott Morrison and Bill Shorten.
Private healthcare stocks, on the other hand, would be negatively affected by the ALP's proposed cap to health insurance premium growth and a boost to public hospital funding. Medibank Private (ASX: MPL), NIB (ASX: NHF), Ramsay Health Care (ASX: RHC) and Healthscope (ASX:HSO) may all face slowing revenue growth under a Labor Government. Ramsay has bounced strongly since our Buy recommendations late last year, but we're hopeful of another opportunity.
Another hot topic this year is energy regulation and funding. To reduce the fallout from climate change, Labor has proposed a 50% renewable energy target by 2030, so it's possible that Australia's largest wind generator, Infigen Energy (ASX: IFN), may win some extra Government financial incentives or projects. Coal and gas generators like Origin Energy (ASX: ORG) and AGL (ASX: AGL), however, may become political targets.
It's reasonable to assume that share prices are going to be particularly volatile in the coming weeks – especially for those stocks above – depending on new election promises and polling results. How do you turn this to your advantage?
What matters is working with the facts as they stand and focusing on the long term. No matter who wins the election, proposals can't be enacted overnight, and most companies don't just sit idly and let their business evaporate – they innovate and create new strategies to grow under the changing conditions.
Election time can produce unique opportunities, but only if you can keep your cool and stick to buying high-quality companies at discounts to their intrinsic value, then hold for the long term. Ten stocks are on our current Buy list. If you have a firm grasp of a company's valuation, extra short-term volatility can help you buy and sell at more favourable prices.
One last thing to be mindful of in the coming weeks is information bias – our tendency to believe that the more information we acquire, the better our decision will be, even if the additional information is irrelevant.
If you find it hard to pull the trigger when buying or selling and justify it with thoughts like 'I'll wait until after the election to see what happens', remember it is times of uncertainty that often deliver the best opportunities. Take a deep breath, and enjoy the hunt!