If Tax Reform Passes, These Stocks Could Pay Off Handsomely

In an on again/off again debate in Washington … behind closed doors … the pressure is building for policy change. Both parties want to boost job growth and stimulate the economy after the Fed takes its foot off the accelerator; it’s just a question of how. Some potential ideas include repatriation of dollars held overseas, infrastructure build outs, healthcare policy changes, and everyone’s recent favorite, tax reform.

Make no mistake about it: Reform has bipartisan support because today’s tax policies were written decades ago. Our code is riddled with band-aid fixes, complexity, and little-known loopholes. That doesn’t mean reform will be easy to pass given how divided policy makers in Washington are. But the recent passing of a budget was a big leap forward, and it increases the chance of serious tax reform.

What does that mean for us as individuals? It depends on what the final product looks like. But for investors, reform could prove to be an opportunity for those that are best prepared.

To help out, I created a list of liquid small- and mid-cap stocks with market caps between $50 million and $5 billion. They traditionally have more exposure to domestic sales and taxation relative to their larger cap, multinational peers. That means they’ll see a greater impact on their income from any reduction in their statutory (imposed) and effective (actually paid on income) tax rates.

Or in other words, these companies in my table below have the most to gain if we get reform, and could lead any post-reform market rally! I ranked them from highest to lowest Weiss Rating, and only included BUY-rated names in order to give you confidence that their underlying fundamentals are sound.

Bottom line: As the political debate trails off, and we get closer to a deal for comprehensive tax reform, keep this list of U.S.-based small- and mid-cap stocks, with high tax rates as well as high ratings, handy. They could pay off handsomely

Best,

Mandeep

Small Cap Edition, By Mandeep Rai, Senior Analyst Mandeep Rai has more than 15 years of investing experience, working as both a stock and credit analyst. At Weiss Ratings, he researches and evaluates financial and economic themes, and makes decisions on when to buy or sell specific shares for the Top Stocks Under $10 portfolio.