The Zacks Analyst Blog Highlights: Financial Select Sector SPDR, Bank of America Merrill Lynch, SPDR S&P Health Care Services, Centene and VanEck Vectors Retail

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For Immediate Release

Chicago, IL - December 6, 2017 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include  Financial Select Sector SPDR Fund XLF , Bank of America Merrill Lynch BAC , SPDR S&P Health Care Services ETF XHS , Centene Corporation CNC and VanEck Vectors Retail ETF RTH .

Here are highlights from Tuesday's Analyst Blog:

Sector ETFs and Stocks Set to Explode Higher on Tax Cuts

President Donald Trump is now closer to its major legislative move and investors have turned extremely bullish on the stock market. This is especially true, as lower tax rates would boost earnings, thereby accelerating dividend and buyback activities (read:  Senate Passes Tax Bill: 5 ETFs to Buy Now ).

Per UBS strategists, overall S&P 500 earnings would increase by 6.5% if the corporate tax rate falls to 25% and by 9.5% if the tax rate is cut to 20%. Republicans expect a tax reform deal by Christmas. According to Thomson Reuters data, the larger, multi-national companies in the S&P 500 currently pay a median effective tax rate of 28%.

While most of the sectors would benefit from Trump's plan, some are set to explode higher than others due to their highest effective tax rate. In fact, this trend has started to materialize with investors rotating into tax-sensitive sectors like retail, financials, telecom, healthcare services and away from the hottest technology stocks.


Retailers, especially department stores, are the biggest beneficiaries of the tax cut plan as they pay maximum taxes among S&P 500 companies given their large domestic networks. The retail group has an effective tax rate of 35%, per  Credit Suisse . Additionally, reduced taxes will provide consumers with extra cash that will lead to higher discretionary spending.

Give huge optimism,  VanEck Vectors Retail ETF hit all-time high of $90.64 following the Senate's passing of tax reform. This fund provides exposure to the 26 largest retail firms. The product has amassed $59.8 million in its asset base and charges 35 bps in annual fees. RTH gained 1.6% on the day and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read:  Should You Buy Retail ETFs Now? )


The financial sector will enjoy dual tailwinds of lower taxes and rising rates. According to Keefe, Bruyette & Woods, tax cuts would add 16% to median bank earnings in 2018 and 18% in 2019 while AB Bernstein sees earnings per share jumping 12-20% at large banks and 15-25% at mid-caps banks in 2018. Tax reform may result in further rise in interest rates that would expand net margins and bolster financial stocks' profits.

The ultra-popular  Financial Select Sector SPDR Fund with AUM of $31.6 billion hit the highest level since Oct 2007 and was up 1.5% at the close. The fund charges 14 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. In the stock world,  Bank of America Merrill Lynch climbed 3.4% on the optimism that the new tax rate would boost its earnings by about 11% in 2018. The stock has an effective tax rate of 28.4% per MarketWatch's Corporate Tax Calculator and earnings growth rate of 20.6% for this year. It has a Zacks ETF Rank #3 and a VGM Score of D (see:  all the Financial ETFs here ).

Healthcare Services

In the healthcare space, healthcare services is one of the most-taxed industries at 30.2% according to Credit Suisse and would be a huge beneficiary of reductions in corporate tax rates compared to pharmaceutical and medical device companies that sell their products overseas. According to MUFG Securities, tax reform could boost managed care companies earnings by 30%.

As such,  SPDR S&P Health Care Services ETF , which tracks the performance of companies in healthcare services, healthcare facilities, managed healthcare and healthcare distributors, rose as much as 1.5% on the day. The fund has amassed $93.5 million in its asset base and charges 35 bps in annual fees. It has a Zacks ETF Rank #3 with a Medium risk outlook.

Centene Corporation has an effective tax rate of 38.6% per MarketWatch's Corporate Tax Calculator but lost 2.8% on the day. Its earnings are expected to grow 12.4% this year. The stock has a Zacks Rank #2 and a VGM Score of B.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss . This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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Bank of America Corporation (BAC): Free Stock Analysis Report

VANECK-RETAIL (RTH): ETF Research Reports

SPDR-FINL SELS (XLF): ETF Research Reports

SPDR-SP HLTH CR (XHS): ETF Research Reports

Centene Corporation (CNC): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks
Referenced Symbols: BAC , RTH , XLF , XHS , CNC

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