With health care making up approximately 20% of GDP, the real question you should be addressing is the companies and sectors that will be massively, though not obviously affected by the advent of Obamacare in five months.

One way I got at this question was by research, and the most promising construct I found came in a report from McKinsey, which basically made the case that companies with relatively low paid workers and a lot of part-time workers would be (relative) beneficiaries of Obamacare. Conversely, the study implied that industries that have a high percentage of full-time employees, who are relatively highly compensated, would fare the worst.

While I would not use this construct as an investment screen, I did find it helpful in identifying companies for which the possibility of higher health care costs represents what we would suggest is the straw that would possibly break the camel’s back. A list follows:

Survive and Thrive

Despite the projected expense increase for individual franchise holders with less than 50 employees, McDonaldzzs seems like a company that overall will take the effects of the Affordable Care Act in stride. Although it had a small earnings miss, its revenue year-over-year and quarter-over-quarter generally does well. Plus it is very adept at menu changes to keep the business coming in.

Starbucks also has a lot of forward momentum and doesn’t to me look like it will be affected by the effects of the health act. It is executing well in terms of international expansion. Overall, it’s a great growth story. Plus it has benefited from having a lock on coffee prices so it has variable costs under control.

Express Scripts and CVS (CVS) are both great growth stories and they have a diversified non-union employee base. But I don’t want to dwell on pharma winners since that story has been told.

Wal-Mart (WMT) is interesting, and it might not be on everyone’s list. It’s one of our fund’s core long-term holdings, so it’s of particular interest to me. It’s true it has been facing some headwinds, but it’s solid and set to improve. It has had consistent dividend growth the past decade, like 15% a year, a strong balance sheet and great earnings. Moreover, in this slowly improving economy, I think it is well positioned as a mass retailer. So I don’t see Obamacare derailing it.

One of Multiple Headwinds

On the other hand, Corning, or as I still think of it Glassworks, continues to struggle a little bit on a variety of fronts. One of its biggest customers was Apple for whom it manufactured the so called “gorilla glass.” I think they’re suffering as Apple slows down and the iPhone hits market saturation. I think its reliance on one customer combined with expenses from Obamacare could hamper it.

Also, I don’t think the world’s largest iron ore producer will fare well. Cliffs Natural Resources’ (CLF) stock has gotten beaten up lately and rightfully so. It faces significant mine depletion in Australia and falling demand for iron ore and coal as the Asian and Chinese economies cool off. I’m not convinced it has fully absorbed the $4.9 billion takeover of Consolidated Thompson. I think these factors, plus the hit Obamacare will have on its relatively highly paid full time workforce in North America won’t do anything to turn things around.

Generally speaking, I don’t like the financial sector at this time. But with Bank of America (BAC) I see issues across the board especially with the mortgages it owns due to the acquisition of Countrywide Financial. It has relatively high income, mostly full time workers, and its labor costs are going to go up.

3M (MMM) has really struggled as a business and I think the investments it is going to need to continue as a viable diversified manufacturer are going to be expensive. So, that capital expenditure plus the fact it has armies of highly compensated engineers, for me spell trouble vis a vis the Affordable Care Act and the expenses it will incur.

Finance is a fluid sector and things change all the time, which is why we always revisit our assumptions.

McDonald’s, Starbucks, Express Scripts, CVS Caremark and Walmart are holdings in separate accounts at GGFS.

Securities mentioned are not to be taken as investment recommendations or advice to buy or sell securities. Discuss the appropriateness of any investment decision with an advisor prior to investing