Tax reform passed in last Saturday by Senate. This is a big mile stone for the new tax reform. After senate pass the tax reform, this is almost certain that tax reform will be a reality with some modification.
One of the the main issue in tax reform was corporate tax rate. Under the proposed bill, corporate tax bill will be 20% instead of existing 35% existing corporate tax rate. This will certainly help the stocks that generate most of its revenue inside the USA.
Though tax cut is not big news for FANG stocks, Some Dow and S&P 500 stocks will definitely will be beneficiary because f this rally. According to stock market pundit, Big banks, industrial, retails should get benefit because of this tax reform.
Some of the stocks that we think will get positive impact because of tax reform, are:
Bank of America(BAC):
Bank of America is another stock that should get benefit from Trump tax reform. Even though Bank of America share price is already up significantly yet this stock still has a potential to move upward. Oher than reduced tax burden because of tax reform, this stock also has some bright spots to consider for long term investment:
Bank regulation are getting easier:
President trump is big proponent of less restriction of financial sector. Bamk of America will be one of the key beneficiary for this easier regulation.
Mortgage landing has become less restrictive:
Bank of America is one of the major plar in the mortgage sector. As mortgage landing has become easier, this is expected that bank of America earning from this sector will grow in the future.
Interest rate will keep rising:
As we know commercial bank is more profitable in the high interest environment. After great recession, lending rate has become approximately zero. As bank made money from spread between bank rate and lending rate, higher interest rate provides bank higher spread for bank loan. Rising interest rate environment will help bank make more money in lending business.
Bac of America P/E ratio is 16.6 which little bit below the industry average. Stock price to book value is also higher than 1. However, its book value is still lower than industry average.
Bank of America net income growth last 3 year was 16% where as industry average income growth was negative. This is really impressive for this stock. We expect stock will keep it income growth rate intact in future.
Bank of America stock broke its long term resistance line in September 2017. After broke its resistance line, Stock did not pull back until its reaches the $26. That 30 % up from the resistance line. After little bit pull back, stock again broke to new high and now trying to break $30 range.
Stock has now lot of momentum. If stock hit $50 following the momentum in 2018 that will not be a surprise any more. With lot of catalysts stock already has in its arsenal, Bank of America is $ 50 range in 2018 is a real possibility.
Marathon Petroleum Corp(MPC):
Marathon Petroleum Corp (MPC) is an oil and gas refinery and marketing stock. This stock was thrown out by investors when oil price went to its bottom at $30.
After oil prices recover from $30 to above $60, MPC also became doubles during this time. Even though stock has become doubles in only one and half years, this stock still has a lot of room to move up.
Stock current P/E ratio is 37 which seems high. However, stock forward P/E is only 14. This clearly indicates stocks has a lot of room to go.
Again with lower tax rate because of tax reform and possible rally of oil prices, makes this stock a good hold for long term investors.
Let’s look at the chart of the MPC:
Marathon Petroleum Corp chart was in the channel from April, 2017 to beginning of the October,2017. Stock broke the channel at the end of October with good volume. After MPC reached above the $60, it went through some consolidation.
However, MPC again has started to move upward with the news of tax ,we expect Marathon Petroleum Corp that investors may see additional 10% to 20% bullish move.
JPM as one of the leading financial stocks should be a good beneficiary of stock for trump tax cut. Stocks is already near all time high, still this stocks has a lot of room to run . May be this stock will be the leader of next XLF rally.
Financial did not do that well in the current bull market compare to tech stocks. This tax cut and future possible interest rate rise will help this stock make a strong rally.
JPM Just test previous all-time high and closed also all time high. This is strong bullish sign.
Goldman Sachs (GS):
Goldman Sachs is another stock that should be also part of Trump tax cut rally.
GS is hovering around $250, which is also close to all time high. Investors needs to watch how stock break this level. Breaking this level successfully may initiate a long rally for this stock.
ConocoPhillips is a energy stock. Energy stock is long hated stock.
Conoco Phillips stock price is almost half of its 2015 all time high. Since a recent oil rally helps the stock to recover a lot, COP still has a long way to go.
If investors is bullish on oil and wants take advantage of trump tax reform, this stock should be in the portfolio of investors.
Stock is maintaining a strong balance sheet with 2% dividend yield.
Some other stocks that could make explosive move because of this tax reform are
- Wells Fargo
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