Four Sectors That Have Benefited the Most from the Tax Reform Bill
For years, U.S. companies have faced some of the highest tax rates in the world.
But that was no longer the case in December 2017, as Congress reduced those sky-high corporate tax rates by 14 points to 21%. That news alone should be enough to strengthen the economy even more. The best part -- the additional revenue should provide fresh interest in mergers and acquisitions, dividends, stock buybacks, and higher stock prices, noted analysts.
Even better, analysts at UBS believe that S&P 500 earnings could rise 9.5% with the corporate tax rate at 20%.
And so far, it would appear that smart investors are rotating into the very sectors that could benefit the most. Look at retail stocks, like Home Depot (HD) for example. Before the corporate tax revision, Home Depot was paying a tax rate of 36.3%. Dropping that to 20% allows the company to potentially add millions to its bottom line.
It’s the reason why shares of Home Depot rallied from $162.50 to $190 in weeks.
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Even department store stocks have seen a boost on the idea that “Retail companies will benefit from paying a lower tax rate,” notes Reuters. “Consumers hopefully will have additional cash, which will help consumer discretionary spending.”
It’s why Macy’s (M) has rallied from $17 to nearly $27, and why Nordstrom (JWN) from $38 to $48.50. Even Kohl’s (KSS) soared from $38 to nearly $57 on the news.
Telecommunication stocks have soared, too.
“They’re domestically focused companies with a very high percentage of their employee base in the U.S. and significant amounts of investments in U.S. infrastructure,” said Amir Rozwadowski, telecom equity analyst at Barclays, as quoted by Reuters. “Therefore they’re predisposed to benefit from tax reform.”
That’s just part of the reason why AT&T (T) skyrocketed from $33 to $39, and why Verizon (VZ) soared from $44 to $53.
Airline stocks have done quite well, too.
In fact, look at Southwest Airlines (LUV), which saw a monster tax rate of 38%. A cut to 21% was likely to add millions of dollars to its bottom line going forward, argued analysts in December 2017. Plus, reduced taxes for the middle class could mean increased travel plans and higher revenue to the airline, as well.
That’s part of the reason Southwest Airlines’ shares have rocketed from $53 to $66.
Bank stocks had a lot to gain, too. Prior to the tax reform, many banks paid a corporate tax rate of 27.5%. A lowered tax rate could add up to 16% to median bank earnings in 2018, and up to 18% in 2019. M&T Bank (MTB) for example ran from $155 to $172 on the news.
With such a sizable cut to the corporate tax rate, we have a win-win situation.
Not only will businesses see millions added to their bottom line, but smart investors will also benefit from the potential for stock buybacks, mergers and acquisitions, higher dividends and stock prices, as well as a stronger overall economy.
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