The stocks most vulnerable to the Democrats' congressional gains are crowded in the defense, pharmaceutical, oil and insurance sectors, while alternative energy providers are clear early winners from the change.

Money managers and analysts say the Democrats' takeover of the House of Representatives, and possibly the Senate, could auger higher taxes, a hike in the minimum wage and scrutiny of tax subsidies enjoyed by some sectors that benefited from Republican control of Congress.

"The Dems will be targeting energy, insurance, pharmaceutical and defense, and they're going to have a lot of power, especially if they've got their friends over in the Senate with a majority," said George Schwartz, president of Schwartz Investment Counsel, manager of the Ave Maria Funds.

Following are sketches of how stocks in some sectors might fare under Democrat leadership after Tuesday's elections.

PHARMACEUTICALS

Democrats want to give Medicare the power to negotiate lower prices for its more than 40 million elderly and disabled beneficiaries, and step up oversight of the pharmaceutical industry. Both moves could be a source of negative publicity that could pressure stocks, analysts and other experts said.

Rep. Nancy Pelosi (news, bio, voting record) of California, who is expected to lead the House, has vowed to pass in the first 100 hours a bill granting Medicare such power.

"She won't be able to do it without (Bush) signing something. But if you now have a majority in the House in favor of reining in pharmaceutical prices in that way, I think something will emerge from that," said David Kelly, senior economic advisor at Putnam Investments in Boston.

ALTERNATIVE ENERGY

Voter concern over the environment suggests there might be a push in Congress to find funding or tax incentives for alternative energy sources.

There also might be another attempt to tighten emission controls on coal and other sources of greenhouse gases. To date, seven different bills have been proposed by Democrats, Republicans and independents in the Senate to address greenhouse gas emissions, but none has advanced.

"You've seen the price of oil take a tremendous increase in the last year, so anything that could help offset that or be an alternative to oil, could get a boost," said Bob O'Brien, head equity trader at Evergreen Investments in Boston.

Ethanol producers, such as Archer Daniels Midland Co. (NYSE:ADM - news), and producers of wind-generated power could see benefits because of the election, said Emanuel Weintraub, managing director of Integre Advisors, which oversees about $170 million, almost all in stocks.

OIL

Democrats want to end tax subsidies directed to big oil companies and enact punitive laws to prevent what politicians say is price gouging, Merrill Lynch said in a note to investors.

The huge increase in profits at many energy companies, a Democrat target over the past year, and the traditional heavy backing by Republicans of oil and gas companies suggests that sector will be under pressure, analysts said.

"Every O&G (oil and gas) company in the S&P 500 and every one in the Russell 2000 has been a net contributor to the Republican party over the last 10 years. That's the only industry for which that's true," said Daniel Adamson, chief executive of Blue Investment Management.

"If one had to predict a sector that would fare the worst, given new leadership in the House, it would be that one," said Adamson.

DEFENSE

Investors had sold defense stocks thinking that a victory by the Democrats could mean cuts in military spending. But experts say Pentagon outlays will keep up their spectacular growth for at least two years, regardless of Tuesday's outcome.

In the run-up to the elections, Pentagon suppliers' shares took a small beating.

In the past two weeks, the Standard & Poor's Aerospace and Defense index (^GSPAERO - news) had dipped nearly 4 percent from a record high on October 16, while the S&P 500 moved higher.

"If you look at what they're (the Democrats) saying, and if they can get these things to pass, I would imagine you're going to see the defense sector weaken. They're talking about how they can exit Iraq sooner," said Jim Huguet, president and co-chief executive of Great Companies Inc., which oversees about $400 million, primarily in equities.

(Additional reporting Muralikumar Anantharaman in Boston)