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Is there a potential screen for companies with highest proportion of overseas cash that might come home if...?



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Q: Is there a potential screen for companies with highest proportion of overseas cash that might come home if repatriation taxes are cut? What about a screen for companies with high capital expenditure, in case tax reform allowed them to expense costs immediately?

A: Dear Subscriber,

We don't have screens for either of those characteristics. Nor would we recommend using them to select stocks.

A repatriation tax break might cause big overseas cash holders to see price gains in the near term, but such boosts tend not to last, and the timing is tough to determine anyway, given how long it takes to pass tax legislation. When would the market reward the good news? After House approval? Senate approval? A bipartisan version that passes both chambers? There are way too many moving parts with a repatriation-driven investment strategy. Same with cap-ex.

More to the point, we wouldn't want to buy a company unless it met our growth-at-a-good-price standards and earned solid Quadrix scores. Without those, a potential cap-ex or repatriation kicker wouldn’t be enough to justify a purchase.

Two of our recommendations — tech giants Alphabet (GOOGL) and Apple (AAPL) — are known for holding hoards of cash overseas. However, our Buy ratings on those stocks stem from our confidence in their business prospects and growth potential, not their foreign holdings.

Thanks for your interest,

Bob Sweet, CFA
Managing Editor, Dow Theory Forecasts

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