What are we looking for?
Ways to capitalize on the proposed deregulation south of the border.
The screen
It has been a number of years since one political party controlled the White House and both houses of Congress, making it easier to pass significant legislation and influence the stock market. Investors may be able to take advantage of proposed pro-business legislation that, in theory at least, will see fewer roadblocks.
Last week, President Donald Trump held a meeting with several business executives to discuss the growth of businesses and manufacturing under his new administration. (Attendees included executives from major companies such as Dell, Whirlpool, Ford, Johnson & Johnson, Lockheed Martin, Dow, U.S. Steel, Tesla, Under Armour, International Paper and Corning.)
The President has proposed a policy to cut two regulations for every new one created, cut the corporate income tax rate from 35 per cent to 15 per cent or 20 per cent, and "cut regulations by 75 per cent, maybe more." While we're not exactly sure how we will measure the decrease, we can assume the new administration will be pro-business.
To get ahead of the curve we look at companies to invest in that we anticipate will benefit from easing regulatory burdens. We limit our screen to U.S.-listed industrials, basic materials and consumer companies. We focus on solid operating cash flow and substantial market capitalizations. We then look at companies with at least double-digit free cash flow (FCF) a share. We also looked at forecasted return on equity (ROE).
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What did we find?
Notable companies in the top 20 with significant available cash flow a share to invest in new operations for 2017 include:
- Alliance Data Systems Corp. (business support services) with a FCF a share ratio of 36.2, and a forecasted ROE estimate of 42.6 per cent;
- NewMarket Corp. (commodity chemicals) with a FCF a share ratio of 22.6 and a forecasted ROE estimate of 46.6 per cent;
- Lockheed Martin Corp. (aerospace and defence) with a FCF a share ratio of 17.71 and a forecasted ROE of 253.2 per cent.
Investors are advised to do their own research before investing in any of the companies listed here.
Paul Hoyda, CFA, is a market specialist in the financial and risk division of Thomson Reuters and specializes in governance, risk and compliance.