What are the best ‘Magnificent Seven’ stocks to buy if Kamala Harris wins in November?

The stock market has performed quite well as the Biden-Harris administration nears its end. Despite the steep decline in 2022, S&P 500 increased by almost 50%. Much of this performance was driven by huge gains for the so-called “Magnificent Seven” stocks.

Could this momentum continue in a Kamala Harris administration? And if so, what are the best Magnificent Seven stocks to buy if Harris wins in November?

Kamala Harris. Official White House Photo by Lawrence Jackson.

Harris’ proposals that could affect the Magnificent Seven

Harris unveiled a wide range of economic proposals. Her campaign released an 82-page document outlining what she would like to do to create what she calls “an opportunity economy.” Not all of the proposals in this document affect the Magnificent Seven, but several may.

The vice president’s plan to raise the corporate tax rate from 21 percent to 28 percent has received significant media attention. While that’s a big increase, it’s still less than the 39 percent top corporate tax rate that was in place before former President Donald Trump’s tax cuts took effect in 2018.

Another Harris proposal is to quadruple the tax rate on corporate stock buybacks. The rationale behind this plan is “to encourage businesses to invest in growth and productivity”.

Harris also wants the federal government to invest in industries that are important to the country’s economic and national security. Her plan specifically identifies the following types of businesses that would be eligible for tax credits:

• Aerospace companies
• Artificial intelligence (AI) data centers.
• Automobile manufacturers
• Biotechnology companies
• Clean energy producers
• Semiconductor manufacturers
• Steel and Iron Manufacturers

Assessing the impact of these proposals

In theory, the members of the Magnificent Seven — Alphabet (GOOG -2.47%) (GOOGL -2.44%), Amazon (AMZN -3.06%), Apple (AAPL -2.25%), Meta platforms (META -1.87%), Microsoft (MSFT -1.57%), Nvidia (NVDA 2.24%)and adze (TSLA -3.70%) – would be equally affected by Harris’ proposed increase in the corporate tax rate. However, in practice, this change could have a different impact on large companies.

The following table shows the effective tax rates paid by the Magnificent Seven in the most recent tax years:

Data sources: Company 10-K filings. *Tesla received more tax benefits than it paid in taxes in 2023.

As you can see, none of the Magnificent Seven companies paid the full 21% corporate tax rate. Microsoft and Meta had the highest effective tax rates of the group. However, all companies have been adept at using the tax code to their advantage.

What about share buybacks? Most of the members of the Magnificent Seven bought back shares in significant amounts. Apple spent by far the most money on share buybacks — $70.6 billion in the nine months ending July 1, 2023. Increased fees on share buybacks could prompt Apple and others to change their deployment strategies of the capital. However, I do not expect this to have a significant impact on the performance of stocks or the underlying business.

Each of these companies could benefit from Harris’ proposed AI data center tax credits. As the three biggest cloud service providers, Amazon, Microsoft and Alphabet could be the biggest winners on this front. However, Nvidia could also be helped quite a bit as its GPUs are heavily used in AI data centers. In addition, Nvidia and Tesla could receive tax credits offered to semiconductor manufacturers and automakers, respectively.

The best Magnificent Seven stocks to buy if Harris wins

So what are the best Magnificent Seven stocks to buy if Harris wins the presidential race? The honest answer is that there is not enough information to know which action would benefit most from the aforementioned policies proposed by the Vice President. Furthermore, it is not certain whether she will be able to implement all her plans should she be elected. US Congress advances legislation; the president just signs the bills.

That said, many economists believe that Harris’ economic policies would help control inflation, while Trump’s plans (especially his proposed tariffs) could cause inflation to rise. If these economists are correct, interest rates would be more likely to be lower during the Harris administration than otherwise.

While all Magnificent Seven stocks should benefit from a lower rate environment, I think the best pick of the bunch is Amazon. The company has substantial debt, making it a bigger potential beneficiary of lower rates than other members of the Magnificent Seven. Lower interest rates could also boost consumer and corporate spending, helping Amazon’s e-commerce, advertising and cloud services businesses.

Regardless of who occupies the White House over the next four years, Amazon should benefit from the shift in IT spending to the cloud from on-premises. This migration will likely be accelerated by advances in AI.

Surprisingly, Amazon’s stock has only climbed about 12% during Harris’ tenure as vice chairman. My guess is that it could bring much bigger gains if she becomes president and interest rates keep falling.