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Typically bullish, Deutsche Bank equity strategist David Bianco took on an unusually cautious tone in a June 15 note. Then, in a July 13 note, he warned that the next 5% move in stock would be “more likely down than up.“And he stuck by that call for three months.
But now he’s turning bullish again.
And it’s all thanks to one reason: Mitt Romney.
From his latest note to clients:
Tactical strategy: S&P 500’s “Next 5%+” move from current prices: UP We flipped our tactical “Next 5%+”call to UP on increased confidence in our 2013E EPS of $108 and a 50% chance of a Romney Presidency. The elections will influence tax policy, which will influence the outlook for dividend hikes and share buybacks. We position for Republican gains with stocks that can boost dividend payout ratios. This includes big-cap Tech, which we find attractive on new products/upgrades, a more stable Europe and Euro and an expected moderate pick up in corporate IT investment next year. A continuation of low and equal dividend and cap gains tax rates (25% or lower) and repatriation tax relief would allow big-cap Tech to deliver double-digit DPS growth for years.
If Obama wins, Bianco thinks there’ll be no change in S&P 500 EPS expectations. But should Romney win, EPS could rise materially.
Under Governor Romney’s plan the 25% tax rate would be tax savings for domestic companies and there would be no added tax on foreign profits, as companies would be able to repatriate profits tax free. This could add as much as $5 to S&P EPS (10% pt lower on 60% of S&P profits generated in the US), but it is likely to be much lower given that many credits/deductions would be dropped.
Still, Bianco’s year-end target remains 1,475 and his 12-month target continues to be 1,500.
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