Governments can be an investor’s worst enemy, Cramer said Thursday, by pushing through taxes on gains, deregulating to the detriment of the markets or, say, “bungling” an entire European nation. But there’s another set of political risks that can be even more severe, hurting earnings and threatening even the highest-quality companies: the elimination of subsidies or the creation of taxes on businesses themselves.
“Sometimes governments giveth, but they can also taketh away,” Cramer said during this week’s Sell Block. “And right now, given that so many sovereign states are strapped for cash, they are in taketh-away mode.”
So investors need to know if any of the companies they own are dependent on these subsidies or if they’re subject to taxes. Like the solar-power business, one of the most heavily subsidized industries out there, especially in Europe. With the Continent’s debt troubles, Cramer has little doubt that government handouts are in jeopardy, which is why he recommended selling First Solar and Applied Materials , in addition to Chinese solar companies like Trina Solar and Suntech .
The same goes for beneficiaries of the US government’s cash-for-caulkers program, which funded rebates for consumers who replaced old appliances with new energy-efficient ones. With that money now running out, Cramer thinks it’s time to give stocks like Lowe’s, Whirlpool, Owens Corning and Sears a second look.
On the taxation side, look no further than Australia’s new 40% “resource super profit tax” on its nation’s miners, starting in July 2012. Any miners with significant Aussie operations are going to get hurt. It could potentially eat up 25% of Rio Tinto’s earnings and cut into as much as 18% of BHP Billiton’s profits. And that pain will ripple out to the machinery companies like Bucyrus International and Joy Global and infrastructure names like Fluor .
Who’s to say that Europe, in desperate need of cash, won’t try something similar? It’s easy for governments to tax natural-resource companies because these mines can’t be picked up and moved across the border. And investors have to at least believe that President Obama is capable of doing the same thing here in the US, too.
Also in the US, Cramer’s worried about anti-trust suits. Monsanto’s down 36% since he put the stock in the Sell Block on Aug. 13, 2009, largely because of fears of the Justice Department. Plus, the Federal Communications Commission is going after cable companies, and the SEC has gone after Goldman Sachs . As Newsweek’s Jonathan Alter told Crameron Tuesday, the present administration just doesn’t understand business well enough to know how these actions hurt stocks.
“So tonight, look over your portfolio, if you own a stock that depends on government subsidies for a chunk of its earnings,” Cramer said, “or if the government is pursuing a business with prosecution or heavy taxation, you’ve now been warned. The Sell Block awaits your companies, and you should trim them even down here.”
Cramer's charitable trust owns Goldman Sachs.
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