Investing

Merrill Lynch Says 5 Companies Could Benefit Huge From Trump Tax Plan

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Like him or not, one thing is for sure about President Trump: he is quickly carrying out pledges he made to supporters during the often brutal campaign. One of those pledges is to lower the corporate tax rate, a move that politicians on both sides of the aisle have argued in favor of for years, as U.S. corporations are among the highest taxed in the world.

In a new report from Savita Subramanian, Merrill Lynch’s superb head of U.S. equity and quantitative strategy, she and her team make the case that companies with less than 10% foreign sales and a 35% or higher median five-year effective tax rate could potentially benefit the most from a lower U.S. corporate tax rate.

We screened the list for stocks rated Buy at Merrill Lynch that fit the metrics to benefit and have no foreign sales, we and found five that look very attractive now.

Charter Communications

Merrill Lynch expects this top cable giant to benefit. Charter Communications Inc. (NASDAQ: CHTR) is a leading broadband communications company and the fourth-largest cable operator in the United States. It provides a full range of advanced broadband services, including Spectrum TV video entertainment programming, Spectrum Internet access and Spectrum Voice. Spectrum Business similarly provides scalable, tailored and cost-effective broadband communications solutions to business organizations, such as business-to-business internet access, data networking, business telephone, video and music entertainment services and wireless backhaul.

Top Wall Street analysts have cited potential growth and strong free cash flow generation following the merger with Time Warner Cable and Bright House Networks as a huge positive. The merger proved time-consuming, but it was finally completed. Recently Wall Street was abuzz with rumors that telecommunication giant Verizon may attempt a mega-merger or purchase of the company, which would create potentially the largest U.S. wireless and internet provider.

The Merrill Lynch price target for the stock is $360, and the Wall Street consensus target is $298.60. The shares closed Monday at $324.80.

Regeneron Pharmaceuticals

This stock remains one of the favorites among portfolio managers and is one of the top Merrill Lynch picks for 2017. Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) has been a performance monster over the past two years, and most Wall Street firms expect it to stay one. The company is focused on the development of therapeutic human antibodies for the treatment of eye disorders, hypercholesterolemia, cancer, inflammation and other diseases.

Regeneron’s product sales are driven principally by its VEGF inhibitor Eylea, which is approved for use in wet age-related macular degeneration and diabetic macular edema, and by Praluent for the treatment of hypercholesterolemia.

The company reported weaker-than-expected quarterly profit, as its flagship eye drug Eylea generated U.S. sales of $858 million in the quarter, which came in below the consensus estimate. The analysts noted the company’s promising pipeline update with multiple Phase 3 assets in allergic diseases and potentially pivotal studies in immuno-oncology.

Merrill Lynch has a massive $502 price target. The consensus target is $434.77. Shares closed Monday at $344.50, so the upside to the Merrill Lynch price target is over 40%.

Range Resources

Many on Wall Street like this defensive natural gas stock now. Range Resources Corp. (NYSE: RRC) operates as an independent natural gas, natural gas liquids (NGLs) and oil company. It engages in the exploration, development and acquisition of natural gas and oil properties. The company holds interests in developed and undeveloped natural gas and oil leases in the Appalachian region of the United States.

Range Resources markets and sells natural gas to utilities, marketing and midstream companies and industrial users; NGLs to natural gas processors or users of NGLs; and oil and condensate to crude oil processors, transporters and refining and marketing companies. As of December 31, 2015, it had proved reserves of 9.9 trillion cubic feet of natural gas equivalents and will continue to pursue an organic growth strategy targeting high return, low-cost projects within its large inventory of low risk, development drilling opportunities.

The company recently closed its acquisition of Memorial Resource Development, which operated the low-cost Terryville Field in North Louisiana and now boasts high-quality asset bases with attractive firm transportation agreements in two geographic areas.

Shareholders receive a tiny 0.21% dividend. The $49 Merrill Lynch price target compares with the consensus target of $47.71. The stock close Monday at $33.34.

AmerisourceBergen

This top health care services company also stands to see a huge benefit from the proposed lower tax rate. AmerisourceBergen Corp. (NYSE: ABC) sources and distributes pharmaceutical products in the United States and internationally.

Its Pharmaceutical Distribution segment distributes brand-name and generic pharmaceuticals, over-the-counter health care products, home health care supplies and equipment, outsourced compounded sterile preparations and related services to various health care providers, including acute care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and other alternate site pharmacies and other customers.

The company also provides pharmacy management, staffing and other consulting services; supply management software to retail and institutional health care providers; and packaging solutions to various institutional and retail healthcare providers. In addition, it provides pharmaceutical distribution and other services primarily to physicians who specialize in various disease states, primarily oncology, as well as to other health care providers.

Shareholders receive a 1.75% dividend. Merrill Lynch set its price target at $94, and the consensus target is $87.63. The shares closed at $83.62.

CVS Health

This top stock has been hit hard this past year, down over 25% since last May. It also resides in the Merrill Lynch US 1 portfolio. CVS Health Corp. (NYSE: CVS) provides integrated pharmacy health care services. Its Pharmacy Services segment offers pharmacy benefit management solutions, such as plan design and administration, formulary management.

The Retail/LTC segment sells prescription and over-the-counter drugs, beauty products and cosmetics, personal care products, convenience foods, seasonal merchandise and greeting cards, as well as provides photo finishing services.

The company operates 9,655 retail stores in 49 states, the District of Columbia, Puerto Rico and Brazil, primarily under the CVS Pharmacy, CVS, Longs Drugs, Navarro Discount Pharmacy and Drogaria Onofre names; online retail pharmacy websites; and 32 on-site pharmacy stores, long-term care pharmacy operations and retail health care clinics.

Note that some think Warren Buffett may have his eye on the company.

CVS investors receive a 2.54% dividend. The Merrill Lynch price target is $95. The consensus target is $87.95, and shares closed Monday at $78.68.

Five companies with stocks rated Buy at Merrill Lynch and that do all of their business in the United States, which is critical, given the stronger dollar. It may make sense to buy partial positions and see if the market doesn’t back up some in the first quarter.

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