Trump's 'tax holiday' could be a windfall for these stocks

• With $250 billion in cash, Apple could benefit most from the Trump tax holiday.
• Such repatriation moves usually do little boost economic growth but rather are boons for shareholders.

Apple may be famous for keeping cash overseas, but many other companies stand to benefit if President Donald Trump gets his way with a tax holiday.

The tech giant's quarterly results Tuesday are expected to show overall cash reserves of more than $250 billion, with the vast majority stockpiled offshore. That cash has been accumulated at a rate of $3.6 million an hour in recent months, according to The Wall Street Journal.

On a per-share basis, the company's foreign earnings left overseas come to more than $40 a share, according to CNBC calculations using figures from a recent report by the Institute on Taxation and Economic Policy.

Unlike Apple, most companies do not report overseas cash breakdowns. But regulations do require that they report money that will be reinvested overseas and thus exempted from U.S. taxation. For many companies, that figure will include a substantial cash element.

Here's how Apple's vast sum compares with other companies' overseas holdings on a per-share basis.

The one-page tax plan outline released by the Trump administration last week indicated that Trump is pushing for a "one-time tax on trillions of dollars held overseas," as well as a "territorial tax system to level the playing field for American companies." It is unlikely that Trump's sparse tax plan will make it through Congress in its current form, and the rate would be for that one-time tax is unknown.

Trump has mentioned a proposed rate of 10 percent. The tax on foreign reinvested income was one of the few ideas in the proposal that has the potential to bring in revenue, though it's unlikely to bring in enough to pay for the rest of the plan.

Repatriation holidays are not a new idea.

Former President Barack Obama once proposed such a tax, and then-President George W. Bush's 2004 American Jobs Creation Act gave corporations a one-time repatriation rate of 5.25 percent (versus the top rate of 35 percent).

Companies brought back more than $300 billion, saving more than $3 billion in taxes, but the program failed to yield any substantial American job growth, according to a 2011 Senate investigation. Much of the money was instead returned to shareholders, despite rules intended to prevent that outcome.

"I think that the lesson of the last repatriation holiday is that it's virtually impossible to prevent companies from doing what they want with repatriated cash in hand," said Matthew Gardner, a senior fellow at Institute on Taxation and Economic Policy. "When you offer a holiday, companies immediately start anticipating a second holiday and start stockpiling."

Since the first holiday, companies have seen their off-shore holdings swell to $2.6 trillion. The largest stockpiles belong to many of the same companies that took advantage of the 2004 program — big names like Pfizer, Merck, Johnson & Johnson, IBM and PepsiCo. While it is unclear which of many forms the final tax will take, companies could stand to save billions.

Companies watching closely

Apple may have the largest overall stockpile, but plenty of other countries could also see substantial gains from a repatriation holiday.

Pfizer, for example, had $197 billion in unrepatriated income abroad last year, according to the ITEP report — that's about the same size as the company's total market cap. Merck, too, has seen substantial savings on untaxed earnings relative to its overall value. While some of that cash has likely gone into investments abroad, both companies would be able to bring billions back to the U.S. for domestic purchases.

"To the extent that tax changes would make it cheaper for us to access financing, then you're quite right," Pfizer CEO Ian Read said on the company's January earnings call, referring to a repatriation holiday changing the company's capital development priorities. "Some deals that previously would not have been affordable may now be affordable."

Speaking on earnings calls in recent years, executives of S&P 500 companies have often declined to provide information about their plans with offshore cash holdings. Repatriation at the current tax rate is usually avoided often enough that it is notable when large companies opt to retrieve cash and pay U.S. taxes. GE made news in 2015 when it paid $6 billion to bring home $36 billion from its sale of GE Capital.

"I am confident that we're talking about the right things," Johnson & Johnson CFO Dominic Caruso said on a conference call after a recent visit to Washington. "We're talking about a lower U.S. tax rate, we're talking about a territorial system, and we're talking about some innovation and some incentive for job creation in the U.S."

After the election, Cisco CEO Chuck Robbins told CNBC that a repatriation deal would allow the company to create more jobs in the U.S. The company has more than $60 billion abroad. On the company's February earnings call, Robbins said cash repatriation would not fundamentally change the company's mergers and acquisitions strategy. But it could lead to cash back to investors.

"If we were to increase our dividend, then that flows through the mutual funds, which flows through to the middle-class America, which flows through to make people feel better about their income," Robbins told CNBC after the election. "I think all that is good for business."

But Gardner argues that any tax holiday would do little to realign incentives for companies that have grown accustomed to avoiding taxes through offshoring. The move would reward larger companies for that behavior but leave smaller companies out in the cold, he said.

"These companies are offshoring profits artificially in anticipation of a special holiday," he said. "And for every company that is doing that, there are 10 small mom-and-pop companies that do business entirely in the U.S. and are complying with the law."