Last chance to prepare your portfolio for tax season

Stocks and Taxes

Have you noticed how most businesses, namely retail and car dealerships, like Ralph Lauren (NYSE: RL) and Carvana (NYSE: CVNA), have been upping their email marketing campaigns to include company-wide discounts and promotions to get their inventories moving? There's a reason behind priming customers like yourself for a sales spree.

These companies know, just like your trusty accountants at H&R Block (NYSE: HRB), that tax season is just around the corner, which means that thousands upon thousands of consumers will likely get a return after filing. With this increased disposable income on their hands, shopping at these brands - which are hard at marketing - could become an easier choice.

Because of these trends, not only is H&R an excellent stock to watch but also names like CarGurus (NASDAQ: CARG) and Simon Property Group (NYSE: SPG) could prove to be a bottleneck where the massive inflow of consumer spending could end up. 

The truth behind the price

Have you noticed that H&R stock has rocked the markets in the past six months? Would you have ever expected a simple - sort of boring - business like this one to rally by as much as 43.6% in half a year, beating the S&P 500 by as much as 35.3% during that period?

Well, knowing what you know now, it would make sense why so much money went into this stock so quickly; revenues and earnings are expected to boom once the first quarter of 2024 financials are out, likely reflecting the new tax filing activity in its figures.

While it may be too late for H&R stock, after all, it is trading at nearly all-time high prices, there is still plenty of opportunity to be had in CarGurus and Simpon Property. That may make sense as a quick bedtime story, though the numbers must also make sense here.

Even though CarGurus stock is trading at 99.0% of its 52-week high, it is far from being near its all-time high prices like H&R. But beyond the price action, there are breadcrumbs of evidence that markets are leaving behind when it comes to where they see the future for the stock.

Comparing CarGurus to competitors like AutoNation (NYSE: AN) can build the case for value once and for all. But before you get to that part, understand that a reasonable tax return can serve consumers as a down payment for a new vehicle, a trend that markets rely on when rewarding CarGurus with its spoils.


CarGurus analysts see earnings per share advancing by 12.8% over the next twelve months, which may not sound like something to write home about. Still, it becomes infinitely more attractive when you see what AutoNation analysts are expecting for that stock.

A 12.1% decline in earnings for the next year will take AutoNation out of the potential buy list and leave CarGurus to become the platform where markets expect tax returns to end up in the form of down payments for new vehicle sales.

Speaking of sales, where do you think the rest of the hypothetical tax returns will end if not at the car dealership? Yeah, that's right, the mall. Simon Property Group just happens to be the landlord for most high-end malls in the United States.

Because the value of that stock is derived from the value of the properties it owns, and the value of the properties they own is derived by how much income it generates, it can be easy to think that a higher profit split from tenants = higher property value = Simon Property stock up!

There's a reason that management can afford to pay shareholders an annualized dividend yield of 5.3%, which beats inflation rates today and the 10-year treasury yield. The reason is that retail sales are landing on a familiar path, and that path is up.

The final hit to logic comes through the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA: XLY), which has performed in stellar fashion in the past month, a 7.6% rally that has no end in sight, especially knowing where consumers stocks may be focusing their soon-to-be fat wallets on.

Whether by story or numbers, you can't deny that both are present to build a potentially bullish case for these stocks. Of course, there are unknowns, mainly whether or not most Americans will receive a tax return this year.

However, if they do, or if they don't, it doesn't really matter. Why? FED cuts and cheaper money will likely end up stimulating spending at these firms regardless, so the rally could be postponed later, unless markets are totally wrong this time.

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