With Donald Trump now in office we have many people speculating exactly what his new tax plan will be. More specifically, we are talking about corporate income tax here in this article, which is currently taxed at up to 35%. Well, to be specific, it’s 35% if they choose to repatriate what they earned overseas and bring that back to the US. Instead, corporations have been stashing money away abroad for years in order to avoid that high tax burden.
Not surprisingly with a 35% tax rate, the US is one of the highest when it comes to taxing money that you bring in from overseas. This may all change very soon under the new Trump administration. Although we don’t know exactly what the plan will be yet, we do know that Trump wants to lower the corporate tax rate to 15% in order to be competitive. His plan is to entice businesses to bring money back to the United States which he then hopes will be used for creating more jobs and advancing the business in any way possible here in the US.
Trump has also hinted at giving corporations an even bigger incentive to start out with a lowered 10% tax rate in order to really push companies to bring money back home right now. The great thing about all this is that there’s a host of companies that would benefit from such a tax cut because they have so much stashed overseas. Here are my top three.
1- Apple (APPL)
Apple is a behemoth when it comes to stashed cash. As one of the biggest players in the tech industry you should expect to see good returns from Apple whether or not Trump actually goes through with his corporate tax reform. However, if he does what he says he wants to do then you will see Apple with a huge amount of cash that could possibly be brought back to the US.
Right now, Apple has about $240 billion in cash with about $220 billion of it held overseas. That is a huge amount of cash held overseas. Yes, Huuuuge.
What Apple would do with all this cash once it’s brought back to the US is not a complete mystery. One can speculate that Apple could use it to buy back more of its stock. They could use it to increase dividends to shareholders pushing it towards a healthy 4% yield. Apple could also use it for more research and development of their products which would mean more jobs here in the US. Also, although it’s not in their usual playbook, you might see Apple use its cash to buy up a company to create synergy.
No matter what Apple decides to do with the tax savings it’s more than likely going to be a good thing for shareholders.
2- Microsoft (MSFT)
This one might come as a surprise to some, but Microsoft has a healthy $110 billion plus in overseas money stashed away. That’s a lot of money that this software giant could use here in the US if they were able to take advantage of a 10% tax rate.
Microsoft, like Apple, could do many of the same things with their money. Payout dividends, pay off debt, buy back shares, and acquire other companies.
However, with Microsoft you might see a lot of spending on new acquisitions. Just last year Microsoft bought LinkedIn to jumpstart their social network side of the business. The deal makes a lot of sense for Microsoft’s growing cloud based software. I’d expect to see more of this from Microsoft in the future. Getting a whole bunch of extra cash to do it with because of a tax break would definitely help.
3- General Electric (GE)
General Electric is yet another company that has over $100 billion in cash overseas. Do you see a trend here with these picks? All companies with lots of money overseas. Over $100 billion is no chump change.
Once again, just like any other company would do with extra cash, GE can pay more in dividends, buy back shares, or go for some good old fashioned mergers and acquisitions.
If history is any indicator then you can expect to see some M&A with GE. It has long been one of their strategies to look for opportunities of acquiring great smaller companies. If they suddenly had a bunch of extra cash you can be sure that they’re going to go shopping.
No matter what these companies decide to do with their extra cash, if they are able to get it back to the US at such a discount, doesn’t really matter. What does matter is if the Trump administration is actually able to pull off such a tax break for these companies. Saying you want to do it is one thing, but actually making it happen is another thing. Without a doubt if such a tax break does happen you can expect to see these companies benefit from the “free money”.
One thing is for sure though. Donald Trump is trying his best to stick to his word that we all heard on the campaign trail. All the more reason for you to get into these stocks or anything else like them.