Profit from Savvy Tax Departments

News that General Electric (NYSE: GE) will likely have zero corporate tax liability for the prior year caused a kerfuffle among the fairness police. The populist outrage here is certainly understandable, as it comes at a time when Americans are writing checks to the U.S. Treasury for their own tax liabilities. Yet an insightful op-ed in the New York Times by Joe Nocera points out that a multinational corporation like G.E. has a fiduciary duty to shareholders to maximize profits. One way to do this is to minimize taxes. As Nocera puts it, “If I were a G.E. shareholder, I would be thrilled to learn that its vaunted 1,000-person tax department is viewed within the company as a profit center.”

That sounds pretty logical to options trading investors.

Of course, G.E. isn’t the only company with a staff of smart people dedicated to minimizing tax liability. Many firms do just that, and many of them are extremely successful. As options traders, we can take advantage of the circumstances by betting on the low tax culpability of these fiscally savvy corporate names. Here are five options trades on companies paying tiny taxes.

 

General Electric – (NYSE: GE)

Let’s start off with the company that’s caused the latest tax outrage, General Electric (NYSE: GE). The speculation that G.E. will have zero tax liability isn’t really news, in fact, over the past five years General Electric made $26 billion in profits, yet it received a $4.1 billion refund from the IRS. The stock is up more than 10% over the last three months, well ahead of the general market’s 5% gain over the same period. GE bulls can make an aggressive bet with the slightly out-out-of-the-money GE May 2011 21 call. This option sold off sharply on Friday, April 8, which makes it a good bargain here for bold traders.

Goldman Sachs – (NYSE: GS)

 

Financial superstar Goldman Sachs (NYSE: GS) paid 1.1% of its income in corporate taxes in 2008, even though it earned a profit of $2.3 billion. Oh, and that year it also received nearly $800 billion from the Federal Reserve and U.S. Treasury Department in bailouts. That’s reason for outrage no doubt, but the better revenge for traders is to make money on the bank’s financial prowess, tax-minimization capabilities and government connections. Check out the GS May 2011 165 Call for an aggressive bet on a continued bullish future for Goldman shares.

 

Exxon Mobil – (NYSE: XOM)

 

 Oil giant Exxon Mobil Corp. (NYSE: XOM) posted a $19 billion profit in 2009. Yet the company paid exactly zero dollars in federal income tax. In fact, the company actually received a $156 million rebate from the IRS. As the price of oil continues to set multi-year highs on the prolonged unrest in Libya and other Middle East countries, look for XOM shares to keep building on its three-month surge of 13.5%. Betting the continued rise in this stock can be achieved with the XOM May 2011 90 Call.

Chevron – (NYSE: CVX)

Another big oil company paying tiny taxes is Chevron Corp. (NYSE: CVX). Although it made $10 billion in profits in 2009, Chevron received a $19 million refund from the IRS. Take this type of positive tax treatment and couple it with the aforementioned metrics in the oil patch helping to push CVX shares nearly 20% higher over the past three months, and you get a bullish cocktail for the aggressive option’s player. Try the CVX May 2011 110 Call for exposure to this stalwart oil giant.

Boeing – (NYSE: BA)

Defense contractor and aircraft maker Boeing Co. (NYSE: BA) is no stranger to working with the federal government. In 2009 the company received a $30 billion contract from the Pentagon to build 179 airborne tankers. It also received a $124 million refund from the IRS. Boeing shares have taken flight of late, climbing nearly 14% so far in 2011. Traders can bet on the stock’s continued ascent with the BA May 2011 75 Call. This option fell 20% on Friday, April 8, making it another sound bargain for aggressively bullish options players.

At the time of publication, Jim Woods held no positions in any of the stocks mentioned in this article.