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3 Stocks to Avoid if the Democrats Take Control of the Senate

Big tech companies like Amazon.com (AMZN), Alphabet (GOOGL), and Facebook (FB) have certainly seen their fortunes rise this year. The stay-at-home trend amid the pandemic has driven up their stock prices, but can this continue if the Democrats win both run-off elections next month? Read more to find out.

Heading into the November election, Wall Street was concerned about a “blue wave,” in which Democrats would control the Presidency and both chambers of Congress. The thought was that a complete Democrat majority would reverse President Trump's tax cuts and seriously consider breaking up major tech companies.

Democrat Joe Biden won the Presidential election but the majority in the Senate has not yet been determined.  There will be runoff elections on January 5th in Georgia to decide who will be the state’s 2 senators.  If Republicans win just one race, they will retain the majority in the Senate, and make antitrust policy for big-tech harder to implement. But if Democrats pick up both seats, then the Senate will be 50/50, with Vice President-elect Kamala Harris as the tiebreaker. 

Therefore, if the Republicans lose both races, it would negatively impact these three tech behemoths in particular: Amazon.com (AMZN), Alphabet Inc. (GOOGL), and Facebook, Inc. (FB).

Amazon.com, Inc. (AMZN)

There's no question AMZN had a great year as its stock is up 75% so far. Social distancing measures led to a rapid increase in e-commerce as stores were initially locked down, and consumers shopped online. This played right into the hands of AMZN as it's one of the largest e-commerce companies and websites in the world.

In its latest financial results, AMZN's earnings grew 69.4% year over year, while its bottom line rose a whopping 192.4%. Assuming the Republicans remain in control of the Senate, the company is poised to increase revenue through e-commerce, its AWS cloud business, smart home products, and more.

The stock is currently rated a "Buy" in our POWR Ratings system. It holds a grade of "A" for Industry Rank and a "B" for Trade Grade and Buy & Hold Grade. It is also ranked #18 in the Internet industry. But if the Democrats win both seats next month, this rating is likely to  change.

AMZN is accused of having monopoly power over its third-party sellers and suppliers. The company's platform is fueled by third-party sellers that offer products on its platform and either use AMZN to fulfill their products or use its infrastructure to put their products in front of potential customers. The problem these sellers face is that they have no access to their customer's information or data. AMZN keeps that for itself so it can sell its own competing products to these customers.

Alphabet Inc. (GOOGL)

While GOOGL's stock hasn't gained as much as AMZN, it is still having a strong year, up 30.7%. The company, which is well known for its search engine and ads business, has gained this year due to its strengthening cloud unit. As many companies were forced to have their employees work from home this year, the need for cloud services exploded, and GOOGL was one of the primary beneficiaries.

The company's cloud business saw 44.8% year over year growth in its most recent quarter. Total earnings were up 62.1% year over year, and revenue increased by 20.3%. If the government remains divided, GOOGL is poised to continue this growth as mobile search traffic and ad revenue is gaining along with its potential in the artificial intelligence (AI) space.

The stock is currently rated a "Strong Buy" in our POWR Ratings with a grade of "A" for Trade Grade, Buy & Hold Grade, and Industry Rank. It is also ranked #2 in the Internet industry. A sweep in the run-offs next month could lead to a Downgrade.

GOOGL is considered to have a monopoly in online search and advertising. The company is regarded as a "Gatekeeper" of the internet due to its dominant market share in search, bolstered by being the default search provider for many browsers and devices. Due to this dominance, many people feel that to get noticed on Google, you need to pay for expensive ads that seamlessly fit into first page results.

GOOGL is able to grab more market share by requiring phones that use its Android operating system to use Google as the default search provider. The company is already facing multiple lawsuits from state attorneys and the Department of Justice.

Facebook, Inc. (FB)

FB is actually facing pressure from both political parties. Democrats believe that the company has too much power in the online ads and social networking markets, while Republicans think that the company is anti-conservative. There's no question that FB is the dominant player in the social media realm. Gone are the days of Friendster and MySpace; FB has taken social networking to new levels.

The platform has users from all age groups and is gaining in markets such as the Asia Pacific. It is seeing increased engagement from its products, including Instagram, WhatsApp, and Messenger. More people were on the app watching animal videos and viewing memes on Instagram due to the pandemic. This has led to strong ad revenue for the company.

The stock is currently rated a "Buy" in our POWR Ratings system. It holds a grade of "A" for Trade Grade and Industry Rank, and a "B" for Buy & Hold Grade. It is also ranked #19 in the Internet industry but is currently facing a number of headwinds, including the loss of data from Apple (AAPL) and GOOGLE, which are making app users on their operating systems opt-in to data collection.

The company has also faced a backlash from many companies due to its failure to halt hate speech and misinformation. In addition, FB is also facing increasing legal issues due to the perceived monopoly power in online ads and social networking. In 2019 FB paid a $5 billion penalty from an FTC Inquiry and is currently being investigated for violation of antitrust principles by the International Trade Commission (ITC) and FTC. Democratic members of Congress are particularly concerned over its pattern of acquisitions to stop rivals such as Instagram.

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AMZN shares . Year-to-date, AMZN has gained 75.13%, versus a 17.31% rise in the benchmark S&P 500 index during the same period.



About the Author: David Cohne

David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.

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