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How investors can still fatten their portfolios with these tax-friendly stocks

How investors can still fatten their portfolios with these tax-friendly stocks

Some are calling it a political “earthquake” after Roy Moore failed to ride his trusty steed to victory in Alabama.

A victory for Doug Jones — the first Democrat to hold that seat in 25 years — puts his party within two seats of a Senate majority, which could be tripuscky for POTUS and Republicans in the future.

But no signs of panic thus far, with both stock futures and the dollar largely holding up. That’s probably because the Republicans are likely to push through the tax bill by next week, before Jones is sworn in. And there’s some distraction en route, given the Federal Reserve decision and likely rate hike today, with all ears perked for signals on the pace of rate increases in 2018.

While U.S. equities have been riding high since Trump’s election on optimism over what tax reform will do for stocks, our call of the day from Stifel says that legislation is a “present yet to be unwrapped” for several restaurant stocks.

Chris O’Cull, from Stifel’s consumer and equity team, notes that every restaurant in their coverage will benefit from a cut in the federal corporate tax rate to 20% from 35% — and many of them seem willing to invest that windfall in the business. (Refresher: What every S&P 500 company actually pays in taxes)

“Based on conversations with several management teams and operators, we expect a substantial portion of any tax savings to be reinvested to improve value propositions,” he says.

For one, casual dining chains that have been struggling to draw traffic may use those savings for remodels, service enhancements and upgrades to food quality, O’Cull suggests.

What else could restaurant companies do? Some might cut back on financial leverage, repurchase stock and/or increase dividends. Stifel says look at Darden DRI, +1.67% , McDonald’s MCD, +0.53% and Texas Roadhouse TXRH, +0.91% for companies that could deliver dividends.

Here’s Stifel’s chart that shows how much upside some stocks stand to get from tax reforms:

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