How Tax Bill Could Impact Agribusiness Stocks



Tax update

On December 2, the US Senate approved the tax bill to cut the tax rates for corporates as well as wealthy individuals in the US. The stock market has broadly seen a positive response. Since the approval of the tax bill, the S&P 500 Index (SPY) is up by 48 basis points and the VanEck Vectors Agribusiness ETF (MOO) is up by 74 basis points as of December 5.

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Stock performance

Since the Senate’s approval of this bill, FMC (FMC) zoomed higher by 4.5% to $89.9 as of December 5. PotashCorp (POT) rose 3.6% to ~$19 followed by Agrium (AGU), which rose 3.5% to $106.2. Terra Nitrogen (TNH) also closed higher in the last two trading days by 2.3% at $81.2, Intrepid Potash (IPI) rose by 1.9% to $3.7, and Mosaic (MOS) ended 1.9% higher at $23.8.

The new tax rates

The new tax structure will cut the US corporate taxes from the current 35% to 20%. However, the Senate and the House of Representatives are yet to reconcile their versions of the bill. Once that happens, Trump stated that the tax rates could come down to 20% to 22%, according to Reuters.

Sectors that will benefit

One Reuters report showed that strategists at UBS expect a tax cut from 35% to 25% would result in 6.5% earnings growth in the earnings of S&P 500 overall and a tax cut to 20% would result in earnings growth of 9.5%.

According to the same report, the telecom, financials, and consumer discretionary sector were the top three S&P sectors that will benefit with earnings growth in excess of 8% each. Materials could see earnings growth of about 4% in 2018 based on a 25% corporate tax rate. Fertilizer stocks such as CF Industries (CF), Terra Nitrogen (TNH), PotashCorp (POT), and Mosaic (MOS) fall under the umbrella of the materials sector.

We’ll discuss fertilizer stocks in more detail next.


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