The GOP's recently passed tax overhaul should help out many of America's biggest corporations as it is set to slash the corporate tax rate. When looking at top 2018 picks, the Street suggests that investors hone in on industries and companies that currently have high tax rates, as they are set to reap the most from a lower rate, as well as those with a great deal of cash overseas, given the new bill incentivizes repatriation. (See also: Apple Buybacks Could Exceed $120B by 2019: UBS.)
The new tax plan is set to reduce the corporate tax rate to 21% from 35%, freeing up free cash flow (FCF) for businesses in finance, health care, transportation and manufacturing. Big banks and industrials such as Boeing Co. (BA) and Caterpillar Inc. (CAT) are expected to surge past already record highs on the new bill. The retail sector, which has suffered tremendously in part due to the e-commerce revolution led by Amazon.com Inc. (AMZN), could also see a revival. Morningstar recommends L Brands Inc. (LB), Macy's Inc. (M), Nordstrom Inc. (JWN) and Kohl's Corp. (KSS) among others as the best retail plays.
More Corporate Spending?
Companies that benefit from a foreseen boost in corporate spending should also gain on the tax plan. Shares of American Airlines Group Inc. (AAL), United Continental Holdings Inc. (UAL) and Delta Air Lines Inc. (DAL) all spiked this week on an upbeat note from analysts at Bank of America Merrill Lynch, who upgraded AAL to buy from underperform and reiterated buy ratings on the latter two. BofA's Andrew Didora wrote that his team "views the tax reform as a significant positive for corporate spending (banks, media companies and even airlines have given $1,000 one-time bonuses to employees), and we believe this can drive a pickup in corporate travel pricing."
As for tech, smartphone maker Apple Inc. (AAPL) has been highlighted as a major beneficiary of President Trump's tax plan. Earlier this week, UBS analysts estimated that the tech titan's overseas cash repatriation could allow Apple to buy back $122 billion of its stock through 2019. (See also: Caterpillar Could Top Records in 2018: JPMorgan.)