hasn’t officially released his proposed changes to tax policy yet but we pretty
much know what to expect. It is
going to make life very easy for us as investors. We can just buy the
most profitable US companies with the biggest hoards of balance sheet cash
and then relax.
that we can count on is a reduction in the rate of tax that corporations pay.
As recently as December, Trump
indicated that he planned to have the rate of corporate tax reduced from 35% to 15%.
of the reduction in corporate taxes is the “Repatriation Holiday”
that Trump wants what would allow companies to bring overseas cash back home
without having to pay a significant amount of tax on it. Both of
these changes are going to benefit the biggest, strongest companies in the
In his Q4
letter, hedge fund manager David Einhorn observed that the way to invest for
Trump policies is to focus on companies that are currently paying a lot of
income taxes. It makes perfect sense.
profitable companies are going to get a huge bump up in cash flow when that
corporate tax rate drops from 35 to 15%. What would be ideal then is to
find companies that are both very profitable (paying a lot of income tax) and
have a lot of overseas cash that the Repatriation Holiday can free up.
that fits that mold very well would be Apple (AAPL). Apple is a long time position in
Einhorn’s fund and a very profitable company with a lot of overseas cash.
what Einhorn said specifically about Apple in his recent investor letter:
stands to benefit from repatriation of foreign cash and tax reform. The company
has over $200 billion in offshore cash it could bring back to the US. AAPL
also derives a majority of its earnings from foreign sources but still accrues
GAAP taxes at a 25% rate, which is higher than many other large tech companies.
The lower corporate tax rates proposed as part of repatriation and tax reform
could therefore lead AAPL toward a structurally lower GAAP tax rate going
tax paid on repatriating that cash has just drops by 25% that means that the
company should be worth $50 billion more than it was without the repatriation
holiday. That is a $10 per share bump without the company having to do anything.
annual tax rate also drops by 60% under a Trump corporate tax cut, that would
reduce GAAP income tax expense from $15 billion last year to $4.8 billion. That
is a $10 billion bump to earnings which on just a 10 multiple means a $100
billion increase to Apple’s market capitalization. That is closer to $20 per
two of them together and you could see a $30 per share bump in Apple’s share
price just from Trump’s tax policies. That is on a stock that is arguably quite
attractively priced already.
for the idea, Mr. Einhorn. Thank you for making investing easy, Mr. Trump.