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Which Consumer Stocks Will Gain from Trump's Tax Policies?

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The “Trump Factor” is ruling the U.S. stock market with major indices touching new highs. Although many are skeptical about the bullish run, there are analysts who believe that the recent stock market euphoria is largely because of the drastic change in policy proposed by Donald Trump. But at the same time, there is an element of uncertainty about the extent to which the Trump administration will be able to implement the revolutionary promises made during elections.

Trump intends to overhaul the tax structure. This includes the restructuring of the seven individual tax brackets into three with 12%, 25%, with 33% rates, and lowering the corporate tax rate to 15% from 35%.

The dramatic announcement made in this context is that of destination-based cash flow tax, which will alter corporate income tax. This implies that businesses would be allowed to fully write off the cost of purchased assets, instead of depreciating the same over a period of time. Further, they will not be allowed to deduct interest expense. In addition, cost of goods purchased overseas will not be deductible against corporate income tax.

The U.S. corporate tax rate is reportedly the highest among the Organization for Economic Co-operation and Development countries. Consequently, Trump’s proposed tax structure is likely to be a boon for those companies that are reeling under a high tax burden. Further, companies that generate a greater proportion of their revenues and profits in the U.S. are also likely to benefit from the move.

Per media reports, the consumer discretionary sector, which has been bearing the brunt of a high tax rate, may gain from the new proposal. Analysts state that retailers within consumer discretionary have been hit hard and cuts in corporate tax will help boost investment.

Retailers such as Best Buy Co., Inc. (BBY - Free Report) , The Children's Place, Inc. (PLCE - Free Report) , Kohl's Corp. (KSS - Free Report) and Office Depot, Inc. (ODP - Free Report) are likely to benefit from the tax reform proposal. These stocks have outperformed the Retail-Wholesale industry that has increased 4.8% over the past six months.

Both Best Buy and The Children's Place, which have surged 57.3% and 44.5% respectively, in the past six months, flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

On the other hand, Kohl's Corporation, which holds a Zacks Rank #2 (Buy) have advanced 45.6%, while Office Depot, which carries a Zacks Rank #3 (Hold), have soared 44.3%, respectively, over the said time frame.

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