Will the Corporate Tax Cuts Benefit the Investors?

The Republican tax Bill aimed at refueling United States economic growth prospects, has big benefits to offer to the corporations that are hitting the growth pedal hard to inch up their growth meters.

Though the states will starve with the impact of less income, corporations and individuals will benefit from this bill and in the long-term, as a result of increased economic activity, state governments will start seeing increased flow of income. Most importantly the overall GDP growth rate of the country will get invigorated for the long run.

On Friday December 22th, Donald Trump signed the much-touted Tax Cuts and Jobs Act into law, lowering the corporate tax rate from 35 percent to 21 percent. This is a major boost to the earnings of corporate companies.

Companies are not likely to keep the 15% direct and unmeasurable indirect benefits (at this time) in their pockets in the form of excessive capital, they are most likely to expand operations and look for opportunities to fasten their revenue and earnings growth. There will be increased economic activity.

In addition to the corporate tax cut, the tax rate on corporate income brought back to the United States was decreased to between 8% and 15.5%, instead of the existing 35%.

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Some companies are well positioned to gain the most than others, due to the additional benefits they get in multiple ways as a result of strong improvement in business growth prospects driven by the tax cuts.
Experts on Stockchase picked stocks that are advantageously positioned to gain the most from the Tax cuts as their Top Picks.

Tax Reform List (4)


David Burrows, President & Chief Investment Strategist, Barometer Capital Management – presented Comerica Inc (CMA-N) as a Top Pick


This is a $70 billion regional bank. Next year, the CCAR limit will rise up to $200 billion, so this bank will not have to go through that very expensive process. Compliance costs for them are coming down if deregulation hits. This is a big beneficiary of lower tax rates. There is improved commercial lending going on in the US and they benefit from that. 90% of their loans our floating rate loans. Dividend yield of 1.4%. (Analysts’ price target is $83.)”

Ross Healy, Chairman, Strategic Analysis Corp has picked The Stars Group Inc (TSGI-T) as a Top Pick


There is always going to be a regulatory cloud over Internet gambling. The stock is cheap and had a terrific last earnings quarter, up 22%. If the central US government is going to starve the states by reducing taxes, then they are going to be looking for extra places to get money, and online gambling is a darn good place to find it. (Analysts’ price target is $33.)

David Burrows, President & Chief Investment Strategist, Barometer Capital Management – Picked United Rentals (URI-N) as Top Pick


He wants to own things that benefit from corporate and business optimism. Feels capital spending will be a significant theme and industrials will play a part. This company has 2 main businesses, they rent equipment and machinery to industrial companies, and they rent construction equipment to non-residential construction companies. This is a prime beneficiary very of a stronger US economy. It has a relatively high tax rate, so they benefit from the tax plan. They also benefit from the theme that companies don’t necessarily want to spend all the money on their equipment, they want to pay for it on an ongoing basis. (Analysts’ price target is $160.)

Kash Pashootan, Sr.VP & Portfolio Manager, recommends Columbia Banking System (COLB-Q)


A regional bank. Over the next year, with the confidence the US consumer is going to get with Wall Street Reform and tax reform, this is a name that tends to benefit. Located in a more affluent geography, in the Pacific Northwest, where there is growth in terms of jobs and income. Trading at around 20X. Dividend yield of 1.9%. (Analysts’ price target is $46.)

Mostly all the companies recommended above tend to benefit in multiple ways from the Tax cut, for example Comercia’s earnings generally get a boost from the tax cut. In addition, the company’s commercial lending exposure, that is already witnessing increased activity is likely to see accelerated growth further as a result of companies increasing expansion and merger activities with the help of increased earnings and debt

The above four stocks are the top picks recommended by experts at Stock Chase to play the Tax cut reform. They not only benefit from the tax cut reform, they also have multiple levers that will get effected positively due to the tax reform.

 

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