2018 Outlook: How Should You Invest? – December 19, 2017


Welcome to Episode #112 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

In this episode, Tracey is joined by John Blank, Zacks Chief Equity Strategist, to discuss the state of the economy, what could happen now that the US has gotten the largest corporate tax cut in history, the odds of a recession, the possibility of the treasury yields inverting and whether inflation will rear its head in the new year.

Tracey and John have talked about the recession odds before on prior podcasts. Early in 2017, they said there were no signs of a recession.

Is that true today, heading into 2018?

Yield Inversion in 2018?

And what about the worries over the 2 and 10-year treasury yields inverting?

Many, including Minneapolis Fed President Neel Kashkari, are fretting as those yields flatten.  Over the last 50 years, inverting treasury yields have signaled a recession 100% of the time.

Yet John believes it could be different this time.

Find out why on the podcast.

How Investors Can Play the Corporate Tax Cuts

Will these massive corporate tax cuts really juice the US economy?

John, who has a PhD in economics, explains what happens when businesses get an infusion of cash.

If you’re trying to invest in the “winners” of the corporate tax cuts, you should check out a few of these names.

Stocks for the Corporate Tax Cuts

1.       CVS (CVS Free Report) has already said it was one of the largest payers of corporate taxes in America. Last year, it paid $3.3 billion with an effective tax rate of 38.4%. What will CVS do with all the cash it sees from the cuts?

2.       Union Pacific (UNP Free Report) is also one of the big cap corporate winners. Last year, it paid an effective tax rate of 37.4%, or $4.7 billion. Will it invest the cash in new technology, new rails, or new equipment? Or will it show up in a higher dividend or a share buyback?

3.       Facebook (FB Free Report) paid an effective tax rate of just 18.3% last year, or $2.3 billion. Therefore, it’s unlikely to see any real impact directly from the cuts themselves.

4.       Microsoft (MSFT Free Report) , on the other hand, had an effective tax rate of 34.1% but it only paid $1.9 billion. It already has $138 billion in cash on hand so a tax cut is, basically, meaningless.

5.       Thor Industries (THO Free Report) is a mid-cap maker of RVs and trailers. Last year, it paid an effective tax rate of 32%, or $182 million. What will Thor do with the extra cash? Smaller companies might be more likely to add employees or build new factories.

There’s a lot of unknowns with the corporate tax cuts simply because they’ve never happened before. Even economists have no idea what will happen in boardrooms with management.

Additionally, the cuts may help those who didn’t have as easy access to capital, as some of the large caps have.

Where should you be placing your investing bets in 2018?

Find out more on this week’s podcast.

[In full disclosure, Tracey owns shares of FB in her personal portfolio mentioned in this podcast.]

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