Editor’s Note: Welcome to our week-long special series! Our editors for both the Sovereign Investor Daily and Winning Investor Daily are looking ahead to 2018 and providing their insights into what they believe will be the big movers and shakers for the new year. They are also looking at critical steps you can take to preserve and grow your wealth. Happy reading! — Jocelynn Smith, Senior Managing Editor
Last Friday, a stock market rally started in anticipation of this week’s tax bill vote. The reason the stock market cares so much is because this reform would cut the corporate tax rates almost in half.
At least, for some companies.
This greatly affects companies that do a lot of their business here in the U.S. So big companies in the tech and health care sectors that provide products and services on a global scale won’t benefit as much.
But big American-specialized companies in sectors like telecom, financials and industrials will benefit more.
So, clearly, the best way to invest in the tax bill is buy companies that do most of their business here. Some of the most regional types of businesses are banks, phone companies and airlines.
For example, if you moved outside the U.S., you wouldn’t have Verizon Communications Inc. (NYSE: VZ) phone/internet service, you wouldn’t use a regional U.S. bank like M&T Bank Corp. (NYSE: MTB) for your banking and you wouldn’t fly on Delta Air Lines Inc. (NYSE: DAL) to travel (unless you were traveling to the U.S.).
Here are the numbers for each of those three companies, to show exactly how they will benefit from the tax break. The numbers below are the percentage of revenue generated from the United States and the company’s effective tax rate, respectively:
- Verizon: 100% of revenue from the U.S., 33.5% tax rate.
- M&T Bank: 100% of revenue from the U.S., 35.8% tax rate.
- Delta Air Lines: 71.4% of revenue from the U.S., 34.8% tax rate.
So, in anticipation of this tax reform, these stocks have skyrocketed over the past month. Verizon is up 17%, M&T Bank is up 8% and Delta Air Lines is up 13%.
And they aren’t done yet. While some of the benefits of the cuts in corporate tax rates have been “priced into” the stocks, they will see years of expanded profits due to the less amount they have to pay in taxes.
This extra cash also gives them the ability to employ more workers, helping the economy.
Another option would be increasing dividends, buying back shares or making acquisitions. These things show not only a healthy business, but they’re extra incentives for investors to buy the company’s stock.
Internal Analyst, Banyan Hill Publishing