Investing

5 Stocks to Buy That May Be Huge Beneficiaries of New Trump Tax Plan

Lee Jackson

Published: November 7, 2017 8:25 am

Last Updated: January 12, 2020 6:34 am

The details about the new tax plan finally hit the tape last week, and for the most part, it offers the potential for some stellar change for many Americans and especially for corporations. Politicians and CEOs have long grumbled over the high corporate tax rate in the United States, currently the second highest is the world. Lowering that to 20%, and allowing companies to repatriate huge amounts of overseas cash at a much lower rate could be huge for potential growth.

In a new research piece, Jefferies screened for companies that have had higher average tax rates and have seen less multiple expansion during the large rally we have seen. The report noted this:

We looked for stocks that have seen less multiple expansion than the market and also have higher than average tax rates. Jefferies analysts highlight 17 Buy-rated stocks among these. The sectors and stocks likely to see the biggest boost from tax reform are often not the sectors that have performed best since the election, and that may create an opportunity.

In the Jefferies list, we found five rated Buy that look like good choices for investors concerned about the stretched levels of the stock market. All make good additions for growth accounts.

Alliance Data Systems

This company has hit our insider buying screens in a big way this year, as ValueAct Holdings has purchased a substantial number of shares in Alliance Data Systems Corp. (NYSE: ADS). The company is a provider of data-driven marketing and loyalty solutions serving consumer-based businesses in a range of industries.

The company offers a portfolio of integrated outsourced marketing solutions, including customer loyalty programs, database marketing services, end-to-end marketing services, analytics and creative services, direct marketing services and private label and co-brand retail credit card programs.

Alliance Data Systems operates through three segments.

• LoyaltyOne provides coalition and short-term loyalty programs through the company’s Canadian AIR MILES Reward Program and Brand Loyalty.
• Epsilon provides end-to-end, integrated marketing solutions.
• Card Services provides risk management solutions, account origination, funding, transaction processing, customer care, collections and marketing services for the company’s private label and co-brand retail credit card programs.

Shareholders are paid a small 0.90% dividend. The Jefferies price objective for the stock is $270, and the Wall Street consensus target price is $267.50. The stock closed Monday at $230.69 per share.

Advance Auto Parts

This big player in the after-market auto parts industry was mauled recently, and Jefferies likes the set-up for the rest of 2017 and beyond. Advance Auto Parts Inc. (NYSE: AAP) is the second largest auto parts retailer in the United States, Puerto Rico and the Virgin Islands. It operates more than 4,000 stores under the Advance Auto Parts brand, as well as nearly 200 AutoPart International locations. It sells to both do-it-yourself customers and professional installers.

The stock has been hit hard this year, and that makes for an interesting value play for investors. Down a whopping 50% from highs hit back in January, any good news for this company, as well as some benefit from the tax changes, could reignite the shares.

Shareholders are paid a small 0.30% dividend. Jefferies has set its price target at $130, while the consensus target is much lower at $107.18. The stock closed trading Monday at $80.71.

Comcast

This broadcasting-related stock could have continued solid upside potential. Comcast Corp. (NASDAQ: CMCSA) is the largest U.S. provider of cable services, with over 22 million basic subscribers. It owns NBCU, which includes the NBC TV Networks, Telemundo, MSNBC, USA, Syfy, Bravo, E!, CNBC and several other cable networks, as well as Universal Films and Universal Theme Parks.

Comcast has invested in technology to build an advanced network that delivers among the fastest broadband speeds and brings customers personalized video, communications and home management offerings. The company reported very solid second-quarter results, and the analysts noted at the time:

Comcast reported quarterly earnings that beat Wall Street expectations but missed slightly on revenue. The media giant’s subscriber losses deepened during the third quarter. The company announced several “smart-home” offerings in August amid a push to diversify beyond its cable options.

Investors in Comcast receive a 1.77% dividend. The $47 Jefferies price objective compares with the consensus target of $45.23 and the most recent close at $35.54 per share.

Conagra Brands

This is a solid stock for conservative investors looking for growth and income. Conagra Brands Inc. (NYSE: CAG) is a leading packaged food manufacturer in the United States that generated fiscal 2016 sales of $8.2 billion. Conagra’s operating segments are Consumer Foods and Commercial Foods. Key brands include Healthy Choice, Hebrew National, Chef Boyardee and Hunt’s.

The stock looks cheap to the Jefferies analysts and trades at a large discount to the company’s large cap peers. A report earlier this year said:

The stock has underperformed year-to-date falling over 12% as takeout premiums in food have dwindled and following the fiscal 2018 guidance. We believe the market is concerned by the slowdown in margin expansion but we believe guidance will wind up being conservative as it was last year and we see other drivers of margin including new products, trade productivity savings, etc.

Shareholders are paid a solid 2.55% dividend. Jefferies has a $40 price target. The consensus target is $39.64, and the stock last seen at $33.32 per share.

Monster Beverage

The current rage for energy drinks won’t be ending any time soon and this company is a leader. With more than $3 billion in sales, Monster Beverage Corp. (NASDAQ: MNST) is an alternate beverage company focusing primarily on the energy drink segment. Approximately 75% of sales are in the United States, and the company has two primary operating segments focused on finished goods and concentrates.

It’s important to remember though that Coca-Cola owns 16.7% of Monster Beverage, and the purchase back in 2015 made the Coke the company’s primary distributor in the United States and gave Monster access to the soft drinks giant’s distribution system in international markets. There always remains a possibility Coke could acquire the entire company as well.

The Jefferies price target is $65, and the consensus target is $58.41. The stock closed most recently at $50.52.

Shares of these five top companies are priced at value levels. They make good sense for more conservative accounts that are still looking for growth via the equity markets. Given some of the underperformance in these companies, most are offering good entry points at current trading levels.