Investing

Will Trump Tax Changes Motivate 5 Tech Giants With a Half Trillion in Cash?

Lee Jackson

Published: November 22, 2016 10:02 am

Last Updated: January 12, 2020 5:31 pm

It’s been a hot topic of discussion for years. When will the politicians in Washington D.C. wise up and lower the tax rate for companies that have billions stored overseas? Many have called for the Congress and the President to lower the repatriation rate to upper single or lower double-digit levels in an effort to encourage American companies to bring the cash back and put it to work.

The five S&P 500 companies with the most cash are all American technology mega-cap leaders, and the CEO of Apple Tim Cook has said for years that his company would definitely consider bring their cash back if the tax rate was lowered to what he says is a “fair level.” It should be noted that the U.S. corporate tax level of 35% is among the highest in the world. It is estimated that American companies as a whole have over $2 trillion parked overseas.

It should be noted that not all of the cash these top tech companies have on their balance sheets is stored overseas.

Here are the five tech companies with the most cash:

Alphabet

The search giant continues to expand and is even working on a driverless car now. Alphabet Inc. (NASDAQ: GOOGL) provides online advertising services in the U.S., the U.K., and rest of the world. The company offers performance and brand advertising services. 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.

Alphabet has an incredible $83.06 billion of cash on the books. It is expanding its product offerings with a new smartphone and a cash infusion could help it continue to launch more projects and buyback shares. A tax break may also help the search giant offer a dividend to investors as the company currently does not pay one.

The Wall Street consensus price target for the company is set at $964.60. The stock closed Monday at $784.80.

Apple

This technology giant has had a rough year, still down over 10% from highs posted in the summer of 2015, in a market making new highs. Apple Inc. (NASDAQ: AAPL) revolutionized personal technology with the introduction of the Macintosh in 1984, and is among the leaders in the world in innovation with the iPhone, iPad, Mac, Apple Watch and Apple TV. Apple’s four software platforms — iOS, OS X, watchOS and tvOS — provide seamless experiences across all Apple devices and empower people with breakthrough services including the App Store, Apple Music, Apple Pay and iCloud.

Apple has an astonishing $67.88 billion in cash, and again, with a favorable rate those funds could come back to the U.S. and help spur growth. The company could also buy back shares and possibly even increase the dividend.

Apple shareholders are paid a 2.04% dividend. The Wall Street consensus price target is posted at $131. The shares closed Monday at $111.73.

Cisco

This is another one of the top mega-cap technology stock picks on Wall Street. Cisco Systems, Inc. (NASDAQ: CSCO) designs, manufactures, and sells Internet Protocol (IP) based networking products and services related to the communications and information technology industry worldwide. It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points, and servers; and next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice, and video applications.

Cisco offers service provider video infrastructure, including set-top boxes, cable/telecommunications access products, and cable modems; and video software and solutions. In addition, it provides collaboration products comprising unified communications products, conferencing products, telepresence systems, and enterprise mobile messaging products; data center products, such as blade, rack, and modular servers, fabric interconnects, software, and server access virtualization solutions; security products, including network and data center security, advanced threat protection, Web and email security, access and policy, unified threat management, and advisory, integration, and managed services; and other products, such as emerging technologies and other networking products.

Cisco has a stunning $65.66 billion of cash and a return back to the U.S. could help the company continue to expand its presence in the cloud and offer the flexibility to buy an optical company to help with products beyond the company’s traditional hardware offerings.

Cisco investors are paid a sizable 3.46% dividend. The consensus price objective for the company is $33.11. The shares closed Monday at $30.05.

Microsoft

This is another top old school technology stock that gives investors a degree of mega-cap tech safety, and has a massive $136.79 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers who have been adding the software giant to their holdings at an increasingly faster pace all of this year and last.

Numerous Wall Street analysts feel that Microsoft has become a clear #2 in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service. Some analysts maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger user. The top analysts believe the company continues to make steady progress with its Cloud transition and expect Office 365 and Azure to be solid contributors to top and bottom line for the next several years. While not likely to snag the #1 slot from Amazon, it could add huge incremental revenue for years to come, especially when you factor in the huge revenue potential from the banks, insurance companies, and the financial services industry.

Microsoft could use its huge cash position to strengthen and expand Azure, purchase complementary companies that could bolster the core offering, buy back shares and increase the dividend.

Microsoft shareholders currently receive a 2.58% dividend. The consensus price objective for the software giant is posted at $63.90. The shares close yesterday at $60.86.

Oracle

This top software stock has traded sideways since the spring, and looks to be putting in a nice cup and handle formation. Oracle Corporation (NYSE: ORCL) develops, manufactures, markets, sells, hosts, and supports database and middleware software, application software, cloud infrastructure, hardware systems, and related services worldwide. The company licenses its Oracle Database software to customers, which is designed to enable reliable and secure storage, retrieval, and manipulation of various forms of data; and Oracle Fusion Middleware software to build, deploy, secure, access, and integrate business applications, as well as automate their business processes.

Trading at 15 times estimated 2016 earnings, and sporting a solid free cash flow yield, many analysts also feel that as the company’s 12C database cycle starts to contribute during calendar 2016, the stock could very well be poised for what they term a breakout year. After recent investors meetings some analysts raised fiscal year 2017 cloud margins to 66% from 63% and earnings-per-share to $2.80. The Merrill Lynch team and others on Wall Street feel that the software giant may be on the verge of a multi-year database product cycle (12cR2).

Oracle has a huge $68.4 billion of cash and top tech pundits have thought for years the company would love to expand its software-as-a-service or SaaS capabilities. This could be organic or via acquisitions. Share buybacks and a dividend increase could also be in the offing.

Oracle investors are paid a 1.51% dividend. The consensus price target for the company is $44.58. The stock closed yesterday at $39.89.

If would seem that if anyone understands the advantage for companies to exploit and utilize their cash position it would be President-elect Trump. It also seems almost a certainty that he will work with Congress to lower the rate for the repatriation of cash held abroad. This will help the economy, and also put dollars in the treasury.