Lucas Kopp
Jan 1, 2025
“American Manufacturing Revival"
American Manufacturing
Overview:
A way to get ahead of the market is an understanding of fiscal policy and economics. A specific
policies implementation in this next year will be very beneficial for American Manufacturing in
particular. Donald Trump plans to lower the effective corporate tax rate for domestic production
to 15 percent, giving investors a good opportunity for this next year.
Effects on American Manufacturing:
Tax cuts raise profits for businesses that it affects the most. In this case, companies that have
most or all their production in the US will have more money left over post-cuts. Here is a table to
show you how location of production dictates who benefits:
Beneficiaries:
The corporations with the most growth resulting from these future tax cuts share the same
characteristics:
• High Profit Margins (More taxable income)
• Domestic Production/Revenue
• High Tax Burden
• Good Cash Flow (Extra money leads to dividends, buybacks, R & D – all benefit
investors in the long run)
Conversely, corporations with less growth as a result will share these characteristics:
• Lower Profit Margins (Less taxable income)
• Low Domestic Production/Revenue
• Low Tax Burden (Corps using tax reductions, credits, various strategies, etc.)
• Low Cash Flow
Watchlist:
Below are the best investments for this opportunity. All these companies saw
enormous benefits from the Tax Cuts and Jobs Act of 2017 and this historical data
shows how beneficial these investments will be.
1. Caterpillar Inc. (CAT):
Easily the best pick for the next several years. Cat has and will continue to be on a strong
growth track for the next several years at least.
Tax Burden: Pays at or above corporate tax. Ex: 21.2% in 2023
Profit Margin: 15.41% in 2023
Domestic Production/Revenue: Significant, with half of its revenue based in the US.
Historical Data: The first gain for CAT will be with anticipation of the tax cuts. For
example, we look at 2017 and the month of December 2017, where the TCJA was passed
and signed:
Each candle is CAT’s daily growth in 2017. This is an illustration of CAT’s 69.92%
increase in value, ahead of the S&P 500 at 19.42%, in anticipation of the benefits of the
Tax Cuts and Jobs Act. In the month of December, when the TCJA passed congress and
was signed into law, CAT’s value shot up 11.64%, ahead of the S&P 500 at 0.98%.
Long Run Growth:
This Image represents the growth in 2017 in anticipation of the benefits for CAT, the
consolidation from the cost of investments made in the following two years, and the
payoffs of these investments' years later. This is an increase in stock value of more than
350%, ahead of the S&P 500's growth of around 167%.
Conclusion: CAT has a strong track record of making good investments from an increase
in net income. CAT will not doubt show huge gains going forward into the first year of
Trump’s presidency. Returns will be seen during the anticipation of legislation and in the
long-term years later.
2. Home Depot (HD):
Tax Burden: Above US Corporate tax rate. Ex: 24% in 2023
Profit Margin: Around 10.5% (High for a company in retail)
Domestic Production/Revenue: The US accounts for over 90% of HD’s revenue
Historical Data:
Home Depot’s stock value showed the same growth pattern in anticipation of tax cuts in
2017:
This image illustrates the 41.37% increase in 2017 ahead of the S&P500 at 19.42%.
Home Depot also had high growth in that month of December at 5.4% ahead of the
S&P500 at 0.98%. This was as a result of the TCJA.
Long Run Growth:
This image shows Home Depot’s growth in the years following the TCJA of 2017. Like CAT,
HD shows an increase of value in 2017 from anticipation, less movement in the two years
following investments, and huge increases in the long run. HD’s growth since 2017 is almost
250%, with the S&P500 at 167%.
Conclusion:
Like CAT, Home Depot will show strong growth in response to the anticipation of the
next tax cuts, consolidation during periods of investments, and very strong growth in the
long run.