These Companies Will Be the Biggest Winners From Trump’s Tax Cuts

By Nick Rokke, analyst, The Palm Beach Daily

It’s official. Tax cuts are coming.

On December 22, President Trump signed the most sweeping tax legislation in more than 30 years.

And that’s got the Palm Beach Research Group office abuzz.

Experts are debating whether tax cuts will be good for individuals. But at the Daily, we don’t debate politics. We’re about making money in the markets.

And there’s no debate that tax reform will be great for corporations.

Starting this year, the corporate tax rate will fall from 35% to 21%.

That means any company that had an effective tax rate of 35% in 2017 will be able to hang onto an additional 14% of their profits in 2018.

Anytime a company can hang onto more of its money, that’s good for stock prices.

But there’s another benefit for corporations in Trump’s plan… They’ll be able to “repatriate” money held offshore for a one-time low rate of 15.5%.

This won’t surprise regular readers…

Palm Beach Letter editor Teeka Tiwari predicted back in October that we could see over $2.6 trillion of offshore cash come back to the states once the tax bill becomes law.

Here’s what Teeka told me then:

The last time the U.S. had a cash “repatriation holiday” like this was in 2004. That’s when George W. Bush signed the Homeland Investment Act.

The act gave a one-time deduction of 85% from taxable incomes received from overseas.

That made the effective tax rate 5.25%, down from the normal 35%.

Over 90% of foreign cash was brought back within our borders.

And if it goes through, shareholders will be the No. 1 beneficiary.

Of course, the one-time 15.5% tax is much higher than what companies paid during the 2004 “repatriation holiday.”

But it’s still nearly 30% lower than the new 21% rate. So, we expect plenty of companies to take advantage of this one-time opportunity.

And they’ll use the additional money to fund new projects that increase profitability. Or, more likely, they’ll return the money to shareholders through dividends or buybacks.

No matter what happens, investors win.

How to Pick the Biggest Winners of Tax Reform

Not every company will benefit from this reform.

Companies not making a profit won’t be helped… They already pay zero taxes.

And any company that doesn’t operate overseas won’t get a one-time boost from the repatriation tax break.

The biggest beneficiaries will be profitable U.S. companies with large piles of overseas cash.

Here’s a list of 10 companies that pay a high effective tax rate… and hold a high percentage of cash overseas.

Company Ticker
Apple AAPL
Bristol-Myers Squibb BMY
Caterpillar CAT
Cisco Systems CSCO
Foot Locker FL
Illinois Tool Works ITW
PepsiCo PEP
Symantec SYMC
Ralph Lauren RL

Now, this is very preliminary research. We haven’t done any more than identify the companies most likely to benefit from Trump’s tax plan. Do your due diligence before considering any of them.

But they’ll be at the top of our radar for the first quarter of 2018. And we suggest you keep your eye on them, too.

Tax reform will be a continuing story this year. And it will be a tailwind for these types of companies.


Nick Rokke, CFA
Analyst, The Palm Beach Daily

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