Trump Mulling Tax Cuts to Incentivize Stock Buying? 6 Picks

Nalak Das

As part of his reelection strategy, President Donald Trump and his administration is reportedly considering a tax cut to help the for U.S. middle-class grow economically, primarily via investing in stocks.

The story was broken by CNBC on Feb 14 citing four senior administration officials familiar with the matter. However, nothing concrete has appeared so far. Notably, next presidential election is scheduled to be held in November this year.

Trump Administration to Incentivize Stock Investment

Per CNBC, the government is considering treating part of personal income as tax-free if invested in stock markets in addition to the traditional 401(K) tax benefits. CNBC has given a hypothetical example per which an individual can invest $10,000 tax-free in stocks if the person’s income is up to $200,000.

Notably, President Trump’s tenure has seen Wall Street perform exceptionally well so far. In fact, Trump often cites Wall Street’s bull run as a reflection of his good governance. The reported tax cut proposal will further inject impetus to Wall Street.

According to the CNBC, Vice President Mike Pence and Larry Kudlow, director of the National Economic Council, reportedly want to unveil the new tax-cut package in early fall, to influence electorate in favor of Trump.

Wall Street’s Dream Run Continues

After witnessing its best ever performance in six years in 2019, Wall Street has maintained its momentum so far this year. Despite facing volatility owing to the coronavirus outbreak in China, the entire major stock index — the Dow, the S&P 500 and the Nasdaq Composite —  gained 3%, 4.6% and 8.5%, respectively.

Wall Street had a mixed January in which the Dow and the S&P 500 declined 1% and 0.2% respectively, while the Nasdaq Composite rallied 2%. Notably, the impact of coronavirus has increased in severity this month. However, surprisingly, all three indexes posted gains in the first two weeks of February. The Dow gained 3% and 1%, the S&P 500 advanced 3.2% and 1.6%, and the Nasdaq Composite rallied 2% and 2.2%, respectively.

On Feb 14, the S&P and Nasdaq Composite closed at 3,380.16 and 9,731.18, respectively, after recording fresh closing highs. The Dow ended at 29,398.08, just 0.5% away from its all-time high level. The S&P 500 index — popularly known as the benchmark index of Wall Street — has already reported 12 record-high closes this year and ended in positive territory in 15 of 19 trailing weeks.

Possible Drivers

First, the U.S. economy is remained stable. Consumer confidence data for January and preliminary consumer sentiment data for February have jumped indicating individuals are still optimistic about future growth prospects. Some business-centric data hinted on a possible bottoming out of the U.S. manufacturing.

Second, the interim trade deal between the United States and China is likely to alleviate the nearly two-year old tariff war between the two of the world’s largest trading countries. De-escalation of tariff war will reduce input cost for U.S. high-tech industries and create export demand for indigenously developed goods.

Third, an accommodative Fed and continuation of easy money policies have restored investor confidence on risky stock markets. The central bank’s assurance of doing whatever necessary to support U.S. economic expansion has boosted market participants’ optimism to a large extent.

Our Top Picks

At this stage, it will be prudent to invest in growth stocks with a favorable Zacks Rank that have jumped year to date and still have a strong upside left. We have narrowed down our search to six such stocks each of which has a Growth Score of A and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our six picks year to date.

 

Smith Micro Software Inc. SMSI develops and sells software to enhance mobile experience to wireless service providers and cable multiple service operators worldwide. The company has an expected earnings growth rate of 42% for the current fiscal year. The Zacks Consensus Estimate for the current quarter has improved 2.9% over the last 30 days. The stock has soared 55.7% year to date.

Owens & Minor Inc. OMI operates as a healthcare solutions company in the United States and internationally. It operates through two segments — Global Solutions and Global Products. The company has an expected earnings growth rate of 29.2% for the current fiscal year. The Zacks Consensus Estimate for the current quarter has improved 1.4% over the last 30 days. The stock has appreciated 29.4% year to date.

Accuray Inc. ARAY designs, develops, and sells radiosurgery and radiation therapy systems for the treatment of tumors in the human body. The company has an expected earnings growth rate of 120% for the current fiscal year (ending June 2020). The Zacks Consensus Estimate for the current quarter has improved 123.1% over the last 30 days. The stock has rallied 24.8% year to date.

Vista Outdoor Inc. VSTO designs, manufactures, and markets consumer products for outdoor sports and recreation markets in the United States and internationally. It operates through Outdoor Products and Shooting Sports segments. The company has an expected earnings growth rate of 42.9% for the current fiscal year (ending March 2020). The Zacks Consensus Estimate for the current quarter has improved 25% over the last 30 days. The stock has climbed 24.3% year to date.

Synaptics Inc. SYNA is a leader in designing and marketing human interface solutions such as touchpads for notebook computers, capacitive touch screen controllers for handsets and biometric fingerprint sensors for mobile devices. The company has an expected earnings growth rate of 44.5% for the current fiscal year (ending June 2020). The Zacks Consensus Estimate for the current quarter has improved 44.5% over the last 30 days. The stock has surged 23.7% year to date.

CareDx Inc. CDNA is a transplant diagnostics company focusing on the discovery, development and commercialization of diagnostic solutions for transplant patients worldwide. The company has an expected earnings growth rate of 400% for the current fiscal year. The Zacks Consensus Estimate for the current quarter has improved 2.5% over the last 30 days. The stock has advanced 23.6% year to date.

Today's Best Stocks from Zacks

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Accuray Incorporated (ARAY) : Free Stock Analysis Report
 
Owens & Minor, Inc. (OMI) : Free Stock Analysis Report
 
Smith Micro Software, Inc. (SMSI) : Free Stock Analysis Report
 
Synaptics Incorporated (SYNA) : Free Stock Analysis Report
 
Vista Outdoor Inc. (VSTO) : Free Stock Analysis Report
 
CareDx, Inc. (CDNA) : Free Stock Analysis Report
 
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