Do we want the President to succeed in his efforts to lower corporate taxes and proceed with repatriation of funds from overseas?
I think the answer is a qualified yes, but no more than that. As long as we get worldwide growth as we are beginning to have, then we don't need these two initiatives to propel the market, as I see it. In fact, the longer they are pushed out the more we can invest now, knowing that they will be there eventually.
I have been thinking about these issues because I, too, have companies that do international business come on Mad Money and talk positively about their businesses overseas. These companies had spoken negatively about them for so long. It's not a coincidence, for example, that Manny Chirico, the fine CEO of PVH Corp. (PVH) , has been making his apparel numbers while others have failed: he has a robust business for Tommy Hilfiger and Calvin Klein overseas, especially in Europe but growing in Asia. The 24% of this $8 billion business that is in Europe is subsidizing the 54% that is in the U.S., as the U.S. is rationalizing its sellout outlets.
Last Friday, we had CBRE (CBG) on, which is a truly global commercial real estate services company. The 56% of its property breakdown that is in Europe and, most importantly, Asia Pacific, is now driving the growth of the company.
Honeywell's (HON) 43% non-U.S. business had been a drag on the company's growth, but that's no longer the case. I could argue it's the engine. I like the growth of the 49% of operating income that United Technologies (UTX) has overseas more than I like the 51% here. If you listen to 3M's (MMM) Inge Thulin, you know that the 59.5% of the growth that is international has really caught fire. In fact, it was a domestic retail channel that held back the last quarter's growth. There's a reason why Action Alerts PLUS charity portfolio holding Apple (AAPL) has such a huge cash hoard overseas: 60% of its business is international; only 37% of its operating income comes from domestic sources. Of Alphabet's (GOOGL) business, 53% is international; 49% of Facebook's (FB) is overseas. Those ratios are both perhaps surprising and pretty typical of the modern-day international tech companies.
So while our corporate taxes are significant for many companies, international growth is more important and we are getting it. In fact, because of that, I would argue that repatriation would matter more than corporate tax rates, and while I expect that a lot of that money would return in the form of dividends and buybacks, none other than true investment legend Warren Buffett strenuously argues how great those two streams are for both the owners of companies.
He bridles in his annual report at the idea that buybacks, for example, are somehow "un-American corporate misdeeds that divert funds needed for productive endeavors." He says that's not the case, provided that the price is right. Sadly, he laments that most buybacks have no valuation parameters. He regards it as "puzzling" that "corporate repurchase announcements almost never refer to a price above which repurchases are eschewed." He adds "what is smart at one price is stupid at another."
Nonetheless, dividends are just stupendous for owners, he argues, and with lower tax rates they are often superior for the companies' owners.
I would argue that Trump's championing of deregulation and his endless parade of execs does create a very strong investing climate that has helped the U.S. as a venue. But the idea that we MUST have corporate tax reform and repatriation is something that I no longer feel is as imperative as it once was.
Or, to put it another way, I would vastly prefer revenue growth and fortunately, for the first time in ages, the international markets are giving it to us.
