The US government is preparing to sign the Crime Reduction Act this week. Inflation, a huge economic package that includes, among other things, $370.000 billion in spending related to climate change. Let's take a look at the winners and losers of this law, and how it will affect our stock investment portfolio...
Who are the winners of the bill?✅
1. Electric vehicle manufacturers.
The package will extend consumer tax credits worth $7.500 on the purchase of a new electric vehicle for another decade (for an estimated total value of $12.000 billion). This should help support customer demand for electric vehicles. Importantly, the tax relief was capped at 200.000 cars, meaning electric vehicle giants like Tesla, General Motors y Toyota They were not eligible, but that limit has been removed. This should boost demand for electric vehicles from these manufacturers.
And what could be an added bonus for these EV makers is that new cars costing more than $55.000 and SUVs costing more than $80.000 are not eligible for the tax break. Tesla and GM have cars that fit the bill, but their startup rivals Lucid Motors y Rivian no, so they will be at a disadvantage until they come out with cheaper models.
2. Renewable energies.♻️
The solar company sun run, the energy storage and software provider Stem and the hydrogen and fuel cell company Plug power are the following. All of them are set to benefit from tax credits worth $120.000 billion from the bill. There are also $30.000 billion in tax benefits for nuclear energy suppliers. Companies like Southern Co, Constellation Energy, Public Service Enterprise Group y Energy Harbor They are likely beneficiaries.
3. Oil companies.️
Oil and gas companies will benefit from existing tax credits for carbon capture and storage and the new credits for the “green” hydrogen production during 10 years.
Overview of spending on the energy transition in the US. Source: Bloomberg.
And who are the losers in all this?❌
1. Pharmaceutical companies.
The new law will allow Medicare negotiate with big pharmaceutical companies on drug prices for the first time. Given the negotiating power that the US national health insurance program is likely to have, this means that the revenues that pharmaceutical companies are likely to generate will be affected. Analysts expect pharmaceutical companies to partially compensate for this by raising drug prices for private insurance customers. But insurers are also important customers and some pharmaceutical companies could find themselves between a rock and a hard place when it comes to profit costs and therefore investing in stocks in this sector.
2. Technology companies.
Part of the bill introduces new taxes, including one that will hit tech companies right at the bottom. A minimum tax of 15% on financial statement profits. Big tech companies have managed to reduce the amount of taxes they pay to the US government, despite being very profitable companies on average, thanks to deliberate inconsistencies between the financial statements they show to investors and those they show to the public. treasury. But the new rules state that any profit that appears on a company's financial statements (i.e. the ones seen by investors) will attract a direct tax. Bloomberg believes that A y Meta They will probably be the most well-known companies that will be negatively affected, but this can be expected to affect all investment in stocks in the technology sector.
3. Companies that want to buy back their own shares.
U.S. companies have announced a record level of stock buybacks this year, but a new tax will make future buybacks less attractive. Companies will have to pay a 1% tax on the shares they buy back. In the short term, this could prompt companies to get ahead and make buybacks before the tax is imposed, which could give a boost to investment in US stocks. In the medium term, however, there are three potential effects worth considering:
- The effect on earnings per share. Buybacks reduce the number of shares, so the same amount of profits spread over fewer shares generates growth in earnings per share (EPS), a key measure for investors. If companies are discouraged from buying back shares, EPS figures could be lower than expected.
- The tax could reduce overall profits to begin with and discourage interest in investing in stocks.
Longer term, if the newly introduced tax is raised further, it will further hurt companies' interest in buying back their own shares, curbing an important source of demand in investing in US stocks.
Why act now?
The new US law has not yet been signed, and the new taxes and tax credits will take time to take effect. What's more, the scope of these new incentives (and disincentives) is 10 years, not one or two. All of this is presented as a long-term investment opportunity. But investing in stocks will see their prices discounted in the future. They make their best predictions about how things will develop for companies in the future. It is estimated that it will have a strong impact on future profits and, therefore, on stock investment prices. And although this is an uncertain attempt, stock investment prices will already have moved to reflect the average investor opinion of the possible outcomes, putting pressure on stock investment accordingly.