25% Corporate Tax Rate Still Huge for Business: 5 Stocks to Buy That Benefit
While President Trump is hardly the first person to decry our nation’s huge corporate tax rate, he may be the first person to get something done about it. The difference is, the huge cuts that some were hoping for, going to as low as 15%, are unlikely. Top analysts and tax strategists see the 25% level as more probable, and that combined with other tax code changes and repatriations, but no border tax, would still be a huge plus for corporations.
A new Jefferies research report makes the case that a 25% level would still lower the S&P 500 multiple by 2.4 multiple points to 15 times earnings. That could provide some huge upside potential for companies with a large domestic exposure.
The Jefferies report highlighted 25 top companies that they expect to outperform on tax reform. We chose five of the largest, most liquid companies.
The search giant continues to expand, and it is even working on a driverless car now. Alphabet Inc. (NASDAQ: GOOGL) provides online advertising services in the United States, the United Kingdom and rest of the world. It offers performance and brand advertising services, and it operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
The Google segment also sells hardware products, comprising Chromecast, Chromebooks and Nexus. The Other Bets segment includes businesses such as Access/Google Fiber, Calico, Nest, Verily, GV, Google Capital, X and other initiatives.
The company’s innovation includes machine learning and artificial intelligence, which it feels can support the core search business and is now being applied across all the growth initiatives at the company. Jefferies also points to Google Cloud, which is the largest cloud infrastructure and engages in more technology, infrastructure research and development in headcount and dollars than any other company. That gives Alphabet the strength and wherewithal to compete and differentiate itself from Amazon AWS and Microsoft’s Azure.
The Jefferies price target for the stock is $1,000, and the Wall Street consensus price objective is $965.81. Shares closed Wednesday at $849.91.
This absolute leader in online retail and dominant player in cloud storage business remains the top pick at Jefferies. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers.
Amazon Web Services (AWS) is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market. The company serves developers and enterprises through AWS, which provides compute, storage, database, analytics, applications and deployment services that enable virtually various businesses.
The analyst noted in the report:
Any reduction in corporate tax rates would benefit the company, which currently pays an effective tax of over 30%.In addition, with about half of units sold by third-party vendors, a border tax would not impact Amazon as much as investors might think (the burden would fall on the vendors). This represents an additional advantage over brick and mortar competitors. Additionally, the one-third of sales Amazon derives from outside North America would not be subject to a border tax.
Jefferies has a $975 price target, and the consensus target is $959.36. Shares closed Wednesday at $909.28.