5 Stocks That Would Win Even With Mini Tax Reform

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After a horrendous showing when it came to dealing with health care, many on Wall Street and Main Street are now wondering about the chances for real tax reform. Given the huge disagreements between the political parties on how that should go, some on Wall Street feel the Republicans may shoot for a “mini” tax reform bill. With the government needing a bill for funding by September 30, and the midterm elections now just a year away, positive action is needed.

In a new research report, Savita Subramanian and her team at Merrill Lynch make the case that after the Obamacare repeal failures, Republicans may shoot for an easier and simpler “mini” tax reform bill, one that includes a repatriation tax holiday and a lowering of the corporate tax rate to 25%. The analysts feel this may be more positive for stocks than a comprehensive tax reform bill.

In the report, Merrill Lynch featured 21 companies that may benefit the most, most of which have little if any foreign sales. The following five are also rated Buy at Merrill Lynch.

Alaska Air

This company has no foreign sales and is a top transport to buy at Merrill Lynch. Alaska Air Group Inc. (NYSE: ALK) is the parent company of Alaska Airlines, and it reported impressive traffic data buoyed by strong demand. The company serves more than 100 cities through an expansive network in Alaska, the Lower 48 states, Hawaii, Canada and Mexico. Despite recent challenges by other carriers for superiority in the Northwest, the company has strong customer loyalty, which has contributed to outstanding earnings and revenue growth.

The stock was hit recently, but shares have recovered as the market reacted positively to the passenger service system integration and pilot contract updates. In addition, despite recent fears of weak pricing, the company noted that pricing trends are stable. Merrill Lynch did lower 2017 and 2018 estimated earnings per share to account for higher fuel and slightly higher impact from a pilot contract.

Shareholders of Alaska Air are paid a 1.4% divided. The Merrill Lynch price target for the stock is $113, and the Wall Street consensus target is $109.15. The stock closed trading Monday at $85.23 a share.

CenturyLink

This company offers solid value and has zero foreign sales exposure. CenturyLink Inc. (NYSE: CTL) is the nation’s third-largest telephone company and the largest rural exchange provider serving residential, business and wholesale customers. The company offers broadband and Ethernet services, and it has 14 million access lines and nearly 6 million high-speed internet connections across 37 states.

CenturyLink is the product of the acquisition of Embarq by CenturyTel in 2008 and Qwest Communications in 2011. Back in March, shareholders of CenturyLink and Level 3 Communications approved their merger by overwhelming majorities. Wall Street loves this deal, and the synergies the two have combined are very strong.

CenturyLink investors receive a gigantic 9.28% dividend, which looks safe for now, but always could be lowered. The staggering $42 Merrill Lynch price target compares with the consensus price objective of $26.27. The stock ended trading on Monday at $23.27 per share.