The No. 1 Benefactor of Paul Ryan’s Border Tax Plan
Among the most powerful catalysts that I follow are policymaking decisions.
I’m talking about the big ones — like Obamacare, the Dodd-Frank Act or the Clean Coal Act.
Every above-listed legislation had profound impacts on certain stocks.
You’ll recall that…
- Obamacare shot health insurance companies to the moon.
- The Dodd-Frank Act stung bank stocks.
- The Clean Coal Act effectively destroyed the entire coal sector.
Now imagine investing alongside such a market-moving catalyst.
Well, I’ve got one for you today.
Speaker of the House Paul Ryan is making serious headway on his border tax amendment.
My senior analyst, Martin Hutchinson, calls Ryan’s plan “ingenious,” and Trump is rumored to be warming up to the plan.
Ryan’s border tax is extremely bullish for exporters.
So please allow me to officially wave the checkered flag on a Dow 30 stock perfectly positioned to thrive on legislative action, which is virtually a foregone conclusion.
I asked Hutchinson to squeeze this opportunity for every penny, and he happily obliged.
Chief Investment Strategist, Wall Street Daily
Question: Martin, tell us what’s likely to move the markets over the next few weeks. What’s at the top of your radar screens?
Martin Hutchinson: I think at the top of the radar screens at the moment is Paul Ryan’s new plan for a border tax amendment to corporate tax. I talked last week about possible tariffs and the effect on Mexico. Paul Ryan’s border tax is quite ingenious because under it, the cost of imports won’t be tax-deductible but income from exports won’t be taxable. The details are not clear, but this should pass the World Trade Organization rules because it’s just like a value-added tax, which they’ve got everywhere else. Mexico has one, and all the countries in Europe have them, except that it doesn’t apply to domestic sales. If it passes, exporters should be hugely benefited.
Question: Let’s talk about that a little bit. Why should we care about this as investors, Martin? You say exports will benefit. Is that going to directly impact certain stocks?
Martin Hutchinson: I think so, because what you want to look for is the companies that have a very heavy export concentration. The dollar exchange rate may adjust, but it shouldn’t adjust the full amount. The balance-of-payments deficit, which is currently $500 billion a year and is a problem, will largely disappear. Exporters certainly will hugely increase sales and especially profits.
Question: OK. Do you have your eye on certain stocks that are going to be in a good position when this passes?
Martin Hutchinson: I think so. The United States’ biggest exporter is Boeing, and it sells 80% of its commercial airplane output globally. That’s a huge amount of money. Obviously, it imports quite a bit as well, because it makes parts internationally, but more or less by definition, its exports exceed its imports. It brings stuff in, assembles it in the U.S., adds some more parts and then exports it as an airplane. If you look at the tax effect of Ryan’s plan on Boeing, its exports will be tax-free. Its imports won’t be tax-deductible, but since the exports are more than the imports, its whole commercial airplane business will essentially become tax-free, and that’s a huge benefit to the bottom line.
Question: Martin, we know that share price simply follows earnings, so will this show up in Boeing’s future earnings report? Is that how shares look to benefit from this?
Martin Hutchinson: That’s right, absolutely. If the plan passes, it should do a lot for the stock. Currently, the sales are $95 billion, net income $4.9 billion. It’s all a price-earnings ratio of 21 times, but on the other hand, the dividend yield is 3.4%, which is pretty solid. It’s already an attractive stock at current prices. This should benefit it further and give it some extra kick going into the next couple of years.
Question: Martin, for our really ambitious readers out there, if they want to take a chance on some of the call options trading for an extra pop using leverage, is that a smart play? Would you say stick to the traditional shares?
Martin Hutchinson: I think this is one way you can play the call options because you can buy long-term call options. The January 2019 series are now trading, and the $180 call option, which is about 10–12% out of the money, is currently trading for $12. You pay $12 for the chance to buy the profits above $180. That looks like pretty attractive leverage to me — 15-to-1. Of course, if this plan passes, the share price should zoom through those levels.
Senior Analyst, Wall Street Daily