Forget that President Obama "borrowed" his main theme for his third State of the Union address from the business bestseller, Built to Last. Or that he took credit for the recent momentum in the employment figures, like I predicted.
My aim today isn't to focus on politics. Instead, I want to dissect the President's address to reveal potential investment opportunities and risks.
I say "potential" because Congress needs to pass legislation before any of the President's initiatives can really have an impact. And given the recent gridlock in Washington – and the fact that it's an election year – there's no guarantee our elected (mis)representatives will get anything done.
Nevertheless, let's be prepared in case they decide to surprise us…
~ Get Defensive With Defense Stocks
The President opened his speech by rightfully thanking all the brave men and women that serve our country in the Armed Forces. He then noted we are now officially out of Iraq. This theme of troop withdrawal resurfaced later in his speech, revealing a key risk for defense-related stocks.
"…working with our military leaders, I have proposed a new defense strategy that ensures we maintain the finest military in the world, while saving nearly half a trillion dollars in our budget."
Translation: Defense cuts are on the way. Massive ones. So we need to tread carefully when it comes to investing in defense stocks.
As I recommended before, I suggest sticking to companies largely immune to any cuts, like unmanned aircraft maker, AeroVironment (Nasdaq: AVAV).
~ Bulk Up on Cyber-Security
Although the President only mentioned it in passing, the need to "secure our country from the growing danger of cyber threats" is serious. And any legislation to ramp up our defenses should benefit companies like Check Point Software (Nasdaq: CHKP), Fortinet (Nasdaq: FTNT), Juniper Networks (NYSE: JNPR) and Symantec (Nasdaq: SYMC).
~ Bet on Bigger Government and Washington D.C. Real Estate
Despite noting his request to Congress "to grant me the authority to consolidate the federal bureaucracy," I counted at least two instances in which the President plans to expand government even more.
He wants to form a Trade Enforcement Unit and a Special Financial Crimes Unit.