If you thought 2017 was good for the stock market, you haven’t seen anything yet.
President Trump’s promise to deliver on tax reform came closer to becoming a reality last week, when Senate Republicans passed a budget measure that opens the door to tax reform. The Republicans hold 52 seats in the Senate and can now slash taxes without support from the Democrats.
Wall Street responded beautifully to the news. U.S. stock futures hit all-time highs. Some sectors stand to benefit the most from tax cuts, such as banks, telecoms, retailers, and small caps.
Tax reform would be a huge positive. But it’s not the only story. The stock market is strong because America’s corporate sector is strong. Here are some of the best growth stocks for 2018 regardless of tax reform.
Bank of America (BAC)
Bank of America has performed strongly since Trump’s election, gaining 51%. That growth has a lot to do with the president’s promises of lower corporate taxes and less financial regulation. Even though revenue has been basically unchanged since 2012, the company is pulling in fatter profit margins by cutting credit losses and non-performing loans.
If tax reform is passed early next year, Bank of America will get a turbocharge. The company paid an effective tax rate of 26.3% in Q1, well over the corporate average of 16.1%. Imagine what it could do with a lighter tax bill?
Bank of America will also benefit from rising interest rates, something that is almost certain to continue in 2018.
The telecoms giant is currently trading at $60.46, steadily gaining value over the past five years. It has enjoyed really strong earnings of late, pulling in $10.2 billion in total revenues in Q2 for a year-on-year increase of 10%. It has attracted 1.3 million new customers over the past year.
T-Mobile also pays an outrageously high effective corporate tax rate of 37.8%. There are few companies in America that would benefit more from the Trump tax plan. But even if reform doesn’t happen, T-Mobile is one of best growth stocks to own in 2018.
Another bank stock, Citigroup has exploded since Trump’s election. It’s now trading at $73.53 and its growth over the past year is more than double the S&P 500 average. Citi has strongly outperformed Wells Fargo, one of its top competitors.
Many analysts view it as a growth stock because it has a low price-to-earnings ratio. At 14.2, its P/E ratio is well below that S&P 500 average of 23.2. That means that earnings are relatively high compared to the stock’s price, which is an indicator of good value.
Stock guru Steve Eisman recently advised investors to bet long on Citigroup: “I think they’re doing a very good job, and what you’re gradually seeing is the company getting rid of divisions that no longer make sense.”
Similar to the other growth stocks on this list, Citigroup pays a high effective corporate tax rate of 31.61%.
Cisco Systems (CSC)
Cisco has had a tough year, losing a lot of value in May. Since then it has bounced back nicely, trading at $34.25 and nearing its highpoint for the year.
This month, the Silicon Valley-based company announced it would purchase Perspica, a machine-learning analytics company. The news helped its stock edge upward. That comes after Cisco bought another company, AppDynamics, for $3.7 billion. This is money well spent.
Another story with Cisco is its reasonable P/E ratio. It’s currently at 18.03, a sign the stock price has a lot of upward potential.
This company doesn’t need tax reform to be one of the best growth stocks of 2018. It wouldn’t hurt, however. Cisco’s effective tax rate is 23.77%.