Small Companies to Trump the S&P 500 in 2017
Big changes are on the horizon for American corporations.
Trump takes office on Friday. But he and his advisors have already been hard at work on their plan to jump-start the economy.
His first 100 days in office could usher in some of the most profitable trades we’ve seen in decades.
Small and midsized companies with lots of cash stashed overseas will likely be the biggest winners.
Why? Because the influx of money from a repatriation tax holiday proportionally benefits them more – especially those companies with the highest percentages of their cash balances sitting outside the U.S.
We’ve seen this before, and the 2005 tax holiday was a perfect example. That year, companies repatriated $300 billion of overseas cash.
Small cap and midcap companies that repatriated experienced average returns 1,438% higher than the large caps that repatriated.
That’s because the large companies were too big and had too much cash on their books for the repatriated money to have made much of a difference to investor returns. And we expect to see the same thing today.
In 2005, the large caps returned an average of just 1.3%, while the small cap and midcap companies returned 20%.
Because the smaller companies had less cash overall, the money they brought back had a much bigger impact on their businesses and shareholders’ returns.
Since 2005, there’s been no incentive for companies to bring their cash back to the U.S. Why would they want to pay a 35% tax to the U.S. government if they don’t have to?
Instead, they’ve kept their foreign profits outside the U.S., allowing the balances to build and build. Until now…
Once Trump’s proposed tax holiday is declared, several companies are primed to repeat and perhaps even beat the performance we saw in 2005.
But with many stocks trading near record highs, companies may not use the majority of the repatriated money to buy back stock like they did last time.
And with interest rates still near record lows, they don’t need to use it to finance acquisitions.
Instead, companies can use it to pay dividends.
Trump’s Dividend Trigger
The technology company Synnex Corp. (NYSE: SNX) is a great example.
It currently has $178.3 million in cash outside of the U.S. That’s 80% of the cash on its balance sheet.
Synnex has been paying a dividend since only 2014. And in terms of yield, it’s a small dividend. However, it has been growing fast.
Synnex’s dividend is 56.5% higher than it was 2 1/2 years ago.
If the company repatriates its overseas cash this year, it could use that money to continue growing its dividend, perhaps at an even faster rate. Or it could reward investors in the form of a special dividend.
Syntel (Nasdaq: SYNT), another technology company, paid one four months ago after bringing back money from its foreign subsidiaries.
Instead of waiting for a tax holiday, Syntel declared a giant $15 per share dividend last September after repatriating $1.24 billion.
The company had been hoarding the cash for years. And since it is cash-flow positive, its board decided against saving the money for acquisitions or business investment and issued it to shareholders instead.
While we may not see too many massive $15 per share payouts during the tax holiday, we will certainly see the number of special dividend declarations increase… especially from cash-hoarding, cash-flow positive companies with little or no net debt.
There are several companies just like Synnex that will benefit from Trump’s proposed tax reforms, the repatriation holiday and his plan to cut the corporate tax rate from 35% to 15%.
If you’re interested in learning which small and midsized American companies will benefit most (and potentially reward shareholders), you must attend The Oxford Club’s invitation-only webcast this Thursday, January 19.
Marc Lichtenfeld, along with the Club’s Research Director Ryan Fitzwater, will be presenting months’ worth of research on this topic. They’ve also prepared a special bonus for attendees of this “first of its kind” live event.
If you haven’t already reserved your seat, do so today. You can RSVP instantly by clicking here.
If you want to take advantage of these once-in-a-lifetime investment opportunities, you must know what trades to make as Trump’s 100-day plan unfolds. Join Marc on Thursday evening as he outlines the details step by step.