Christmas has arrived early in the U.S. as the Senate played
the role of Santa to pass the budget deal to President Obama for
his final approval. The deal showcased a rare display of Senate
bipartisanship to clear the clouds of political dysfunction that
threatened to negate the improvements in the overall economy and
a dream run for equity indices.
The smooth passage of the deal by a margin of 332 to 94 in the
House of Representatives and 67 to 33 by the Senate also
underplays a remarkable achievement to end the political impasse
as observed by a partial government shutdown in October, a
near-default by the U.S. Treasury and congressional gridlock on
It is too early to speculate whether this will lead to a new era
of smooth governance for the largest economy of the world and
address the contentious issue of debt ceiling when it reaches its
limit in February. However, what it definitely has achieved is a
two-year cushion to avoid the brutal cycles of fiscal crisis and
has given a fresh lease of life to avert another federal shutdown
until Oct 1, 2015.
The budget deal has set a limit for discretionary spending at
$1.012 trillion for 2014 (up from $967 billion) and $1.014
trillion for 2015 (up from $995 billion), and has spared the
congress to seek a customary vote on these issues. It has also
rolled back $63 billion in automatic cuts, popularly known as
sequestration, that were to hit the Pentagon and some domestic
departments on the first day of the new year.
Without raising taxes, the accord intends to reduce the fiscal
deficit by $23 billion over a 10-year period. It also aims to
offset the increased discretionary spending through $13.6 billion
from new user fees on air travel and food aid shipments, $12
billion from reduction in pension benefits for uninjured military
personnel and $28 billion from extension in Medicare cuts. In
addition, the deal requires new federal employees to take more
burden of their pension expenses by contributing more toward
their retirement funds than current government workers.
With the president virtually set to give his final approval for
the budget deal to be enacted as a law, the nation could expect a
two-year reprieve from an across-the-board sequester cut that had
hit every government program ranging from medical research to
military weapons development. The deal also eases smooth
government functioning and eliminates the risk of last-minute
approval through voting to endorse federal spending programs.
This in turn reduces the risk of high furloughs and economic loss
as exhibited during a 16-day partial shutdown in October, which
resulted from an impasse between Obama and the Republicans, who
demanded changes to his 2010 healthcare law as a condition for
approving funding for government operations. Estimates from
credit rating agency Standard & Poor's reveal that the
partial shutdown of federal services across the country had
robbed the exchequer of $24 billion, and a possible recurrence in
Jan 2014 would have further made a hole in the economy.
The smooth passage of the budget deal has also been lauded by
Standard & Poor's, although it was unlikely to modify the
U.S. sovereign credit rating due to its small size and minor
impact on the long-term fiscal outlook.
MICRON TECH (MU): Free Stock Analysis Report
PACKAGING CORP (PKG): Free Stock Analysis
TOWERS WATSON (TW): Free Stock Analysis
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The budget deal has come as welcome news for investors, who were
worried with the volatility of the U.S. dollar in the last 90
days that fell to 4.93% on Dec. 13 from a yearly high of 7.34% in
September, according to the Bloomberg U.S. Dollar Index. They
envision the deal as a first decisive step to address the key
issues in the economy and fix a broken process that has led the
government to be funded primarily through stopgap spending bills
3 Top Stock Picks
Amid such an encouraging development, there are certain stocks
with attractive valuation metrics backed by a Zacks Rank #1
(Strong Buy). Let's take a closer look at these companies that
appear to be well positioned to benefit from the solid sector
dynamics and positive geopolitical environment.
Packaging Corporation of America
): Headquartered in Lake Forest, Illinois, the company
manufactures and sells containerboard and corrugated packaging
products. This fourth largest containerboard producer in the U.S.
manufactures a range of linerboard and corrugating medium and
other products such as multicolor boxes, and displays used to
merchandise products in retail locations, and special
design/application boxes used in the food and agriculture
industry. The stock is trading at a forward P/E of 20.03x and has
a long-term earnings growth expectation of 15.2%.
Towers Watson & Co.
): Based in New York, Towers Watson offers human capital and
financial consulting services. The company helps organizations
improve performance through effective people, risk and financial
management by providing customized solutions in the areas of
employee benefits, talent management, rewards, and risk and
capital management. The stock is currently trading at a forward
P/E of 21.63x with a long-term earnings growth expectation of
Micron Technology Inc.
): Headquartered in Boise, Idaho, Micron manufactures and markets
semiconductor solutions across the globe. The company sells its
products to original equipment manufacturers (OEMs) and retailers
through its internal sales force, independent sales
representatives, and distributors, as well as through a Web-based
customer direct sales channel, and channel and distribution
partners. The stock is currently trading at a forward P/E of
10.49x and has a long-term earnings growth expectation of 11.8%.
Such strong fundamentals signify that this is perhaps the most
opportune time to own these high-potential stocks that pledge a