Goldman says buybacks could be pulled forward this year as companies look to dodge new tax. How to play it

Published Mon, Aug 15 202211:50 AM EDT

The House of Representatives passed the Inflation Reduction Act on Friday, sending the legislation to President Biden to be signed into law. One of the provisions of the act is a 1% excise tax on stock buybacks , which may change how companies repurchase their own shares once it goes into effect, according to David Kostin, chief U.S. equity strategist at Goldman Sachs. "We expect the buyback excise tax will have a limited impact on S & P 500 use of cash, but its passage creates downside risk to our $1.1 trillion 2023 buyback forecast and modest upside risk to repurchases in the remainder of 2022," he wrote in a note late last week. Companies looking to avoid the tax next year may accelerate their stock repurchase plans through the end of 2022, especially as most share prices are still substantially below their previous highs, Kostin wrote. So far this year, U.S. corporations have authorized about $856 billion in share repurchases, more than they'd approved at the same time last year, according to Goldman Sachs. Still, actual repurchases have been running below 2021 levels, further setting up the chance for a boom in buybacks going forward before companies pull back in 2023, when the tax starts. Given that share buybacks can lift stock prices, now may be a good time for investors to buy into companies that could ramp up repurchases through the rest of the year. Here are some companies that Goldman includes in its buyback basket, with market prices through Aug. 11. Goldman's buyback basket includes a range of companies from communication services, consumer staples and discretionary, energy, financials, health care, information technology and more. Overall, the median stock in the Goldman basket of buyback companies has underperformed S & P 500 . Through Aug. 11, the median stock in the index was down about 10% year to date while the median stock in the buyback basket had shed 14%. But the median stock in Goldman's buyback basket has a trailing 12-month buyback yield of 9%, outpacing the median S & P 500 stock's 2%.