Profit opportunities from US tax cut 'underestimated'

Profit opportunities from US tax cut 'underestimated'

Profit opportunities from US tax cut Advisor Thomas Cook believes closer scrutiny of President Donald Trump’s flagship changes to the US corporate tax rate reveals people may be underestimating profit opportunities.

Cook, principal at Affinity Financial Group, is eying up investment prospects with US companies after the government cut corporate income tax rate from 35% to 21%.

The Nova Scotia-based advisor believes that, while a lot of the changes have already been priced into public equities, the tax package could create a lot of earning and profitability that people have underestimated.

“There’s a bigger part of that package,” he said. “It was a tax cut but it’s also a tax reform and a lot of the details, if you look a little closer, could really spur on a lot of economic activity beyond just having a lower tax rate, giving it a more competitive advantage compared to other parts of the world.”

Cook is also alert to cash that is expected to flow back into the US via companies that have subsidiaries around the world, something he believes will be a boon for these firms and for the American stock market.

He said: “In my opinion and from my research, I think there could be a little shock in how well this is received and the economic activity that comes out of it in the next year or two years.”

The ability of companies to write off capital investments quicker than under the previous tax code is also a fillip to advisors and investors, according to Cook.

He said: “That could really spur on a lot of capital expenditures and corporate investment, and that’s been one thing that’s a little bit lagging in a typical economic recovery. You get a lot more corporate spend and capital expenditures to help come through a recovery; we haven’t really seen that like in past recoveries.

“A lot of companies are sitting on a lot of cash. Number one, having a president that seems a little more business friendly than past administrations and, number two, this ability to write off assets could really spur on a lot of big companies’ spending.”

Before investors get too giddy, however, Cook, like many, is urging caution given that the market is late cycle, but he maintains there are opportunities to be had south of the border.

He said: “The challenge is that you have to be cautious on valuations. We are not starting at year one or two after a correction or a recession. You have to be cautious in how you identify opportunities but I do think there are going to be some surprises from Main Street on economic growth.

“How the stock market reacts to that, that’s to be seen. I think there will be good opportunities there but that for the core American economy it’s going to be good for them.”

Related stories:
Inside a portfolio manager’s 2018 investment strategy
Rates to rise as economic growth steps up, says TD

More market talk: