Warren Buffett Explains The Trump Effect & Why Some Stocks Are Still Dirt Cheap, Like Apple Inc (NASDAQ:AAPL)

- May 6, 2017

Many see a 15% rise in the S&P 500 over the last six months and conclude that stocks are overpriced. The large gains and bullish sentiment is often described as the “Trump Effect”, but as Warren Buffett explained at Berkshire Hathaway Inc (NYSE:BRK.B) annual meeting, it’s not President Trump’s tweets that are moving stocks, but his policy.

BNL Finance has said many times that if President Trump is successful with tax reform that lowers corporate taxes and allows for cash repatriation, then stocks are very cheap.

Buffett explained that a reduction in the corporate tax rate could mean an additional billion dollars to its bottom line. More importantly, Berkshire Hathaway Inc (NYSE:BRK.B) has a deferred tax liability of more than $80 billion. If corporate taxes are lowered, Berkshire Hathaway Inc (NYSE:BRK.B) and its investors save a lot of money while also gaining larger profits year-after-year.

The deferred taxes that are applicable to unrealized gains on securities would all be applicable to us,” according to Buffett. “We have $90 or $95 billion in gains, and our owners, dollar for dollar, will participate in that… If the rate were to drop 10%, that $9.5 billion is real.

With that said, tax reform is clearly profitable for Berkshire Hathaway Inc (NYSE:BRK.B) and large financial institutions like Bank of America Corp (NYSE:BAC).

Companies with big earnings and relatively cheap stocks will be the biggest beneficiaries. We believe that Apple Inc (NASDAQ:AAPL) will be the biggest beneficiary of all.

With over $11 billion in last quarter profit, the difference between Apple Inc (NASDAQ:AAPL) pre and post-tax gains was more than $3.6 billion! If Apple Inc (NASDAQ:AAPL) tax rate declines by 10%, it could add a couple billion dollars to the company’s bottom line.

Apple Inc (NASDAQ:AAPL) has over $28 billion in deferred income taxes and more than $255 billion in cash & equivalents, most of which is off-shores. It’s the latter that makes Apple stock so attractive after tax reform. It is also one big reason that AAPL stock has been one of the biggest beneficiaries of the Trump Effect on stocks, rising 37% over the last six months.

The bottom line: Listen to Warren Buffett. He is smarter than you, or I. The Trump Effect on stocks has not ran its course, not if tax reform becomes a reality. Then, securities like Apple stock are still cheap.

This entry was posted in Editor's Pick, Members, Timely Analysis Bookmark the permalink.
RSS feed for this post. Post a comment or leave a trackback: Trackback URL.

2 Trackbacks

  1. By Por qué no intentarlo aquí on May 10, 2017 at 4:45 am

    Por qué no intentarlo aquí

    Warren Buffett Explains The Trump Effect & Why Some Stocks Are Still Dirt Cheap, Like Apple Inc (NASDAQ:AAPL)

  2. By imoc.com.ve on May 10, 2017 at 3:19 pm


    Warren Buffett Explains The Trump Effect & Why Some Stocks Are Still Dirt Cheap, Like Apple Inc (NASDAQ:AAPL)

Post a Comment

You must be logged in to post a comment.

Join the 100s Who Beat the Market with a BNL Membership

See What Current Members Are Saying

My Complete Access BNL Membership Includes

  • No contract. Guaranteed results. Cancel anytime.
  • Unrivaled Performance. The BNL Portfolio has outperformed the S&P 500 by 150% since October 1, 2015
  • Access. You know what goes in the BNL Portfolio, David’s Dividend Portfolio, and Eddy’s Options.
  • Alerts. You know when a trade is made in all three managed portfolios with application, text, and email alerts
  • Transparency. Verifiable trade records for the BNL Portfolio, David’s Dividends, & Eddy’s Options
  • Research. We have coverage on more than 50 companies
  • Results. Our 10 highest rated stocks outperformed the market by 134% last year
  • Live Chat. Join 100s of other members in an exclusive Members Only section with Chat
  • Growth. We are the fastest growing financial research platform in our industry.
  • Build My Portfolio. You give us your goals, we help you get there
  • Premium Content. Unlock hidden sections in each article. You also get Value of the Month selections and BNL Research Reports.
  • Community. We have professionals and beginners; retirees and college students; the 99% & 1%, but here, we are all equal.

Like what you see? Sign up for our newsletter and get the latest stock picks straight to your email!