Tax Cuts Finally Pass

Remember, the December episode of the Zacks Ultimate Strategy Session is now available for viewing! Don't miss your chance to hear:

• Sheraz and Tracey Agree to Disagree on what can derail the rally and the downside risks to the market in 2018
• David and Brian answer your questions in Zacks Mailbag
• Sheraz and Brian choose one portfolio to give feedback for improvement
• Market conditions from both fundamental and technical views
• The full list of top-performing stocks over the past 30 days
• New stocks added to the ZU portfolio
• And much more

Simply log on to Zacks.com and view the December episode here. And please let us know what you think of the new format. Email all feedback to mailbag@zacks.com.


You might consider it a case of exhaustion. The market has been waiting a long time for tax reform, and most people knew it would happen sooner or later. Now that Congress has passed the bill and its on the way to the President, stocks were just kind of ‘blah’ about the whole thing.

“I’ve talked about the tax bill enough, so I won’t say much today other then it passed and will be signed into law. Markets didn’t react as the news is already priced in,” said Jeremy Mullin in Counterstrike. “Going into 2018, any kind of infrastructure spending bill will be the key to the next move higher in the markets."

The major indices had a second straight day of slight losses. The S&P declined 0.08% to 2679.3, the Dow was off 0.11% to 24,726.7 and the NASDAQ slipped 0.04% to 6961.

There was a lot more happening in the portfolios on Wednesday, including several double-digit winners. Home Run Investor cashed in a more than 50% winner and then added a new stock to help that portfolio’s push for diversification. Insider Trader halved two positions and took home double-digit gains for each, and then Tracey added a new name. She also bought a new position for Value Investor. Give it all a look in the highlights section below:

Today's Portfolio Highlights:

Value Investor: You’ve probably heard of Briggs & Stratton (BGG), especially if you’ve ever shopped for a lawn mower, snow blower or portable generator. The company is the largest small engine producer in the world. So it may come as some surprise that BGG is still a small cap that’s not widely followed on Wall Street. Well, that’s to this portfolio’s benefit. Tracey thinks this Zacks Rank #1 (Strong Buy) is on the cusp of breaking out. In addition to solid value characteristics, earnings are expected to rise 14% in 2018 and another 9.8% in fiscal 2019. The editor calls BGG a “good small cap addition to the portfolio”. Read the full write up for a lot more on this new pick.

Home Run Investor: The portfolio took a chance back in February that Model N’s (MODN) revenue recovery was for real, and it certainly paid off. This revenue management services company for the life sciences and tech industries gained more than 50% in the portfolio since that time. A recent downgrade from a major brokerage firm has convinced Brian Bolan to play it safe and sell MODN to secure that return. But the editor wasn’t done.

The name of the game in this portfolio right now is ‘diversification’. The lucrative sell of MODN helps to reduce exposure to tech, while today’s addition of Heritage Commerce Corp (HTBK) increases the portfolio’s stake in the underrepresented financials space. The company's topline is expected to grow 11% in 2018, which is well above the industry average of 8%. EPS is expected to grow 16%. The company is also a Zacks Rank #2 (Buy) with a Zacks Style Score of “B” for Value. Read more about today's moves in the full write-up.

Insider Trader: Tracey wants to make one more trade before the new year, but the portfolio is already at 100%. Fortunately, there are a couple of old winners that can be halved to make room. The editor took 50% out of each of her positions in LCI Industries (LCII) and eTrade (ETFC), which are trading near their 52-week highs and bring solid returns of nearly 31% and more than 20%, respectively. The portfolio still gets to keep these winners moving into 2018 and now has room for a new addition.

The small caps will be big beneficiaries of a corporate tax cut, so Tracey wants more exposure to the asset class. She is also a fan of the chemical industry right now, which makes Nexeo Solutions (NXEO) a perfect fit for the portfolio. This global chemical and plastics distributor is expected to grow earnings by 77% in fiscal 2018. Earlier this month, its Senior VP of Chemicals bought 50,000 shares, and its CEO picked up 80,000 back in August. Read the full write-up for a lot more info on these new moves.

Options Trader: "The markets ended modestly lower as traders breathed a sigh of relief that the long-awaited tax cuts finally passed.

"Sadly, there’s been a lot of partisan bickering about whether it’s a good deal or not. But politics aside and focusing just on the impact for stocks, it’s definitely a win for the market.

"Corporate tax rates will be cut to the lowest level in 68 years, going all the way back to 1949. It also provides incentives to repatriate accumulated profits from overseas (estimated at more than $2.5 trillion dollars).

"And what will businesses do with all of those profits?

"Plenty!

"There's no doubt some of that will go to stock buybacks. But with the US suddenly becoming one of the most business friendly countries in the world, you will see massive new corporate investment. This includes relocating foreign operations back to US soil; building new plants to expand; and the purchase of new equipment and technology to see it all through." -- Kevin Matras

All the Best,
Jim Giaquinto

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