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Pro Analysis

Goldman says buy shares of companies paying the most in taxes for a Trump tax break boost

Donald Trump
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Donald Trump

Lower corporate taxes under President-elect Donald Trump are likely to boost profits significantly for S&P 500 companies, according to Goldman Sachs, which advised clients to buy certain stocks poised to benefit the most from this trend.

The firm cited data showing a rise in earnings after companies lower their effective tax rates through legal means.

"Falling effective tax rates have been the greatest contributor to rising S&P 500 ROE [return on equity] during the last 40 years and potential tax cuts would likely boost profitability even more," Goldman's chief U.S. equity strategist David Kostin wrote in a note to clients.

Return on equity for S&P companies rose by 21 basis points to 14.3 percent last quarter, halting eight quarters of consecutive declines and marking a potential turning point in profitability, Kostin said.