The Senate passing a tax reform package was huge news for the market, and while there remains a lot of work between the Senate and the House of Representatives to come to a final agreement on the bill, there is a good chance that something could be on the president’s desk and signed before the end of the year. Not only will individual taxpayers get some decent relief, but U.S. corporations look to benefit in a big way as well.
The current U.S. corporate tax rate is among the highest in the developed world, and if it drops down to 20%, it could mean a huge increase in S&P 500 earnings in 2018 and beyond. In fact, the chief strategist at Deutsche Bank, Binky Chadha, estimates earnings could increase by as much as 12% next year.
Deutsche Bank has a basket of high-tax stocks that could see some big benefits from a tax cut. We found five that are rated Buy that would be great additions to growth accounts.
Abbott Laboratories
This top pharmaceutical and med-tech stock has very solid growth potential. Abbott Laboratories (NYSE: ABT) manufactures and sells health care products worldwide. Its Established Pharmaceutical Products segment offers branded generic pharmaceuticals to treat pancreatic exocrine insufficiency; irritable bowel syndrome or biliary spasm; intrahepatic cholestasis or depressive symptoms; gynecological disorders; hormone replacement therapy; dyslipidemia; hypertension; hypothyroidism; Ménière’s disease and vestibular vertigo; pain, fever and inflammation; migraines; anti-infective clarithromycin; cardiovascular and metabolic products; and influenza vaccines, as well as to regulate physiological rhythm of the colon.
Its Diagnostic Products segment provides immunoassay and clinical chemistry systems; assays used to screen or diagnosis cancer, cardiac, drugs of abuse, fertility, infectious diseases, and therapeutic drug monitoring; hematology systems and reagents; diagnostic systems and cartridges; instruments to automate the extraction, purification and preparation of DNA and RNA from patient samples, and detects and measures infectious agents; genomic-based tests; informatics and automation solutions; and a suite of informatics tools and professional services.
Abbott investors receive a 1.94% dividend. The Deutsche Bank price target for the stock is $62, and the Wall Street consensus target is $61.47. The shares traded early Tuesday at $54.85.
Corning
This was a huge player in the fiber build-outs in the 1990s and may be ready to ramp back up for new deployments. Corning Inc. (NYSE: GLW) is one of the world’s leading innovators in materials science. For more than 160 years, Corning has applied its unparalleled expertise in specialty glass, ceramics and optical physics.
Its products enable diverse industries such as consumer electronics, telecommunications, transportation and life sciences. They include damage-resistant cover glass for smartphones and tablets; precision glass for advanced displays; optical fiber, wireless technologies and connectivity solutions for high-speed communications networks; trusted products that accelerate drug discovery and manufacturing; and emissions-control products for cars, trucks and off-road vehicles.
Many see the company as a winner in not only the new 5G wireless, but also strong Internet of Things applications. Most see both areas as infrastructure opportunities for the company given the robust demand for IoT connectivity and 5G infrastructure builds.
Corning investors are paid a 1.92% dividend. Deutsche Bank has a $35 price target, and the consensus target is $31.21. Shares traded at $32.25 Tuesday morning.
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General Motors
This domestic car company could continue to benefit from the flooding and damage this past summer. General Motors Co. (NYSE: GM) designs, builds and sells cars, trucks, crossovers, and automobile parts worldwide. The company operates through GM North America, GM Europe, GM International Operations, GM South America and GM Financial segments. It markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Holden, Baojun, Jiefang and Wuling brand names.
The company also sells cars, trucks and crossovers to dealers for consumer retail sales, as well as to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies and governments. In addition, it offers connected safety, security and mobility solutions, and information technology services. The company, through its subsidiary, General Motors Financial Company, provides automotive financing services.
Shareholders receive a 3.53% dividend. The $52 Deutsche Bank price target compares with the consensus target of $47.21. The shares recently traded $43.00.
Lockheed Martin
This is a top aerospace and defense stock to buy, and many on Wall Street are expecting a very solid continuation of U.S. and foreign defense spending. Lockheed Martin Corp. (NYSE: LMT) researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems, products and services. It also provides a wide range of defense electronics products and IT services.
Being the Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady inflow of follow-on orders, not only from the U.S. government but also from many foreign allies of the nation.
While the company reported third-quarter earnings below the consensus and Merrill Lynch estimates, it raised its 2017 earnings outlook. New revenue recognition will reduce 2017 net sales by approximately 2% from current guidance. The analysts are very positive on the free cash flow and record backlog at the company.
Investors are paid a 2.55% dividend. The Deutsche Bank price objective is $340. The consensus target is $328.85, and the shares were last seen at $313.05.
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Micron Technology
Micron Technology Inc. (NASDAQ: MU) is a global leader in advanced semiconductor systems. Its broad portfolio of high-performance memory technologies, including DRAM, NAND and NOR flash, is the basis for solid state drives, modules, multichip packages and other system solutions. Its memory chip solutions enable the world’s most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications.
Micron and Intel announced last year the availability of their 3D NAND technology, the world’s highest-density flash memory. Flash is the storage technology used inside the lightest laptops, fastest data centers and nearly every cell phone, tablet and mobile device.
The company recently announced a massive secondary offering that will be used to retire a stunning $2.25 billion in outstanding debt. While clearly the added shares will present dilution, the elimination of the debt service equals up the score for the company on the balance sheet. The chip maker said it will redeem all $1.25 billion of its outstanding 7.5% notes due 2023, as well as $1 billion of 5.25% notes due 2023.
Deutsche Bank has set its price target at $55. The posted consensus target is $53.64. Shares traded at $41.10.
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Five top companies that could be big winners if the tax reform package is passed. While the plans from Congress and the Senate are somewhat different, they don’t appear to be so drastically apart on the specifics that they can’t come to an agreement. After almost 20 years of sub-standard growth, this could be a game changer for the country.
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