Who doesn’t want to get as lucky as Warren Buffett in the investment world? Since Berkshire Hathaway Inc.’s (BRK-B – Free Report) inception, the holding company has yielded a stellar return of nearly 21%.
Buffett’s investing style has always remained simple: buy shares in great companies and hold them for a significant period of time. These companies have reliable business models that have stood the test of time. They also generate plenty of cash and provide dividends, which are indicators of a strong and sustainable business.
Such companies tend to come from sectors such as financials, technology, and consumer discretionary. The Trump administration’s initiative to cut tax rates is already providing the much-needed windfall to financial service providers, as well as computer and software makers.
Things have been looking up for consumer stocks as well. A record low jobless rate and a series of highs for the stock market has buoyed optimism on household finances and the economy. Lest we forget, the Dow Jones had touched 23,000 in intraday trade for the first time on Oct 17. The blue-chip gauge, in fact, logged its fourth 1,000-point climb over the past 12 months, the most it has ever posted in a calendar year.
Thus, let us focus on the Oracle of Omaha’s favorite companies that are likely to make the most of the third-quarter earnings season. Such companies are positioned to report upbeat earnings results, which could eventually lead to an uptick in share price.
Trump Tax Plan
The tax code hasn’t been refurbished since 1986, when President Ronald Reagan, along with a divided Congress, broadened the tax base and lowered marginal tax rates.
Recently, the House of Representatives, led by Speaker Paul Ryan, passed a $4.1-trillion budget legislation that paved the way for the much-awaited tax code rewrite. Such a tax cut would include trimming the business tax rate to 20% from 35%.
The lowering of the domestic tax rate will result in repatriation of hundreds of billions of dollars in cash. This should, ultimately, boost the economy and drive interest rates. Higher interest rates boost bank profits by increasing the spread between what banks earn by funding longer-term assets, such as loans, with shorter-term liabilities. Non-banking financial institutions should gain immensely from a rising rate environment since an increase in rates generally occurs during periods of economic strength and upbeat investor sentiments.
