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7 Stocks With Most to Lose From Undoing Trump Tax Cuts

John Divine

Stocks the Trump tax cuts helped.

Congress put a historic bill on President Donald Trump's desk. Not one for subtleties, it was called the Tax Cuts and Jobs Act of 2017. In it were a bunch of tax cuts, the most sweeping of which was a break for "corporate America," cutting the federal corporate tax rate from 35% to 21%. Democrats never liked TCJA, which passed without a single vote from that party. Every major Democratic presidential contender still in the 2020 race vows to repeal the Trump tax cuts. While axing Trump's tax cuts would affect every U.S. corporation, which stocks would be most impacted? It's something to think about if you think a Democrat is poised to be elected this year. Here are seven stocks with the most to lose from undoing Trump's 2017 tax cuts.

Apple (ticker: AAPL)

How would the most valuable public company in the U.S. manage if it had to rein in its aggressive stock buybacks and dividend hikes? Obviously, it would get along just fine, but Apple's been aggressively utilizing its tax breaks in combination with another aspect of the TCJA -- the repatriation of foreign cash at a steep tax discount -- to buy back shares aggressively. In fiscal 2019 it bought back $67.1 billion worth of stock and paid out $14.1 billion in dividends. Although financed largely through debt, regular annual buybacks of this size are only possible due to Apple's commitment to repatriate more than $250 billion in foreign profits and the billions it saves under Trump's tax cuts.

Amazon.com (AMZN)

Amazon notoriously doesn't really do that whole "paying taxes" thing. Trillion-dollar Amazon.com, a sprawling e-commerce giant trafficking in almost everything under the sun, paid $0 in federal income taxes in 2017 and 2018. It used a combination of loopholes, write-downs, incentives, credits and carry-forward losses to claim $266 million in tax rebates. Still, Jeff Bezos' empire wasn't unaffected by the 2017 tax cuts; the TCJA also allowed for accelerated, 100% instant write-downs on capital spending and investments, an accounting trick that Amazon utilizes. The major aspect of America's tax code that Amazon uses to skimp on taxes is the ability to write off stock-based compensation, which comes in the form of steadily appreciating AMZN stock.

Nordstrom (JWN)

Stocks that would be affected negatively by the repeal of TCJA would be companies that dealt with rather high tax rates before Trump came to town. Nordstrom certainly qualifies for that category. Its effective tax rate was something out of a horror movie before tax reform came around: 38.6% in 2015, 48.2% in 2016, 44.7% in 2017. The relief came immediately in 2018 when Nordstrom's effective tax rate was almost halved, hitting 23.1%. In the first nine months of 2019, the bill to Uncle Sam was a little larger at 27.6%, but it's still a far cry from a few short years ago.

Paccar (PCAR)

Several industrial heavyweights would face downward pressure upon the repeal of TCJA because of the boon that the tax cuts' instant depreciation provision for capital goods provides. Paccar, which makes commercial trucks, has certainly benefited. In Paccar's first quarterly results after the tax cuts, the CFO said that the legislation would "generate positive cash flow for Paccar," and that "accelerated machinery and equipment depreciation will likely stimulate increased capital investment in the United States." In 2018, the first full year in which the revised tax code was active, Paccar's revenue jumped 21%, its highest growth in years.

AT&T (T)

Telecom is a notoriously capital intensive business. The cash requirements to function as a seriously competitive operator in this market arguably constitute the industry's largest barrier to entry, so AT&T can't be too mad about this fact of life. As AT&T and the rest of the industry slowly transition into the era of 5G, capital investments are even more necessary. It was a beautiful thing for shareholders when the TCJA allowed AT&T to depreciate capital investments it already needed to make. In the first year after its passage, AT&T said it spent an additional $1 billion on capital investments in the U.S.

Schlumberger (SLB)

Oil field services giant Schlumberger should be a long-term beneficiary of the Trump tax cuts. The oil and gas industry, in general, paid one of the highest effective tax rates in "corporate America" at 37%, so other companies in this space should also be major beneficiaries from the TCJA -- and major losers should the legislation be reversed. As far as Schlumberger's bottom line specifically, SLB was coming off two straight years of major losses when the tax bill passed. After losing $1.69 billion in 2016 and $1.51 billion in 2017, Schlumberger swung to a $2.14 billion gain in 2018, the first full year under the new tax code.

AutoNation (AN)

Every now and then you run across a company you practically can't imagine existing before the tax cuts. A brief gander at the financials behind car dealer AutoNation should illustrate this point. Before the tax cuts, AN's tax bills were a depressing visage: The company paid effective tax rates of 38.6% in 2015 and 38.5% in 2016. Some relief came in 2017 when the rate fell to 31.7% due to a "favorable adjustment to our deferred tax liability as a result of the U.S. tax reform bill." Today, effective rates around the mid-30% range are considered a rip-off: The company paid 25.2% in 2018 and 26.4% in 2019. In truth, AutoNation isn't alone. Any U.S.-focused business that paid excessive rates pre-2017 will have good reason to lobby against a repeal.

Stocks that would fall if tax cuts are repealed.

-- Apple (AAPL)

-- Amazon.com (AMZN)

-- Nordstrom (JWN)

-- Paccar (PCAR)

-- AT&T (T)

-- Schlumberger (SLB)

-- AutoNation (AN)

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