Higher Taxes Suck. Here is One Way to Profit – The Bullish Case for $HRB

Nobody wants to pay higher taxes, but since it’s likely inevitable, might as well look for a way to profit. I’m mostly a technical trader, but that doesn’t mean I ignore fundamentals or a good thesis for a stock to move higher. Below you will find some fundamental reasons, my own thesis, and technical reasons that H&R Block (HRB) could be a powerful stock to own in the short term as well as long term.

I’m not going to go into details about the fundamentals, but here are some basic highlights. You can read more about them here and here:

  1. HRB is committed to returning cash to shareholders. They have a generous dividend yield of 4.3%, which has grown annually since 2005.
  2. Recently management has been focusing on stronger saving initiatives that will help lower costs.
  3. In their latest quarter, the total revenue reported showed a growth of 6.2% from a year earlier.
  4. They have been successfully expanding internationally.

My own thesis

  1. Seasonality. HRB tends to perform well from December to March/April when tax season is underway.
  2. With unemployment levels going down more people are going to need help with their taxes.
  3. With entrepreneurs on the rise, they won’t have the luxury of easy W2 filings.
  4. Given the Supreme Court’s ruling on the new Patient Protection and Affordable Care Act (a.k.a. Affordable Care Act or Obamacare) there are going to be complicated changes in taxes (mostly in 2013 and 2014) that will likely increase the need for professional help.
  5. With the changes that will be brought on by the resolution of the fiscal cliff, many people that have been filing their own taxes may seek professional and affordable help.

Although much of my thesis pertains to HRB benefiting in 2014 (when 2013 taxes are filed), in theory the market is forward looking.

HRB has been steadily moving up and made a new 52-week high today.

Monthly chart – HRB looks like it might have found its bottom in October of 2010 and has been recovering with higher lows since then. Furthermore, since May of this year, HRB looks like it might be making a similar type of run up that it had from December 2000 to August of 2001. Prices are above the 50 and 200 day simple moving average with the 50 day just beginning to flatten out.

Weekly chart – Since May of this year, HRB has been steadily moving higher with a bullish RSI as well as MACD. Although the 200 day simple moving average is flat, a rising 50 day above it is more  bullish than bearish.

Daily chart – The daily chart looks good with HRB at a new 52-week high and a bullish RSI and MACD. Volume has picked up since the start of December and price is above both the 50 and 200 day simple moving averages that are rising.

Because HRB is not a fast moving stock I would play this in one of two ways. Either try to capture the seasonality of this stock by holding onto the stock or call options for the first few months of 2013 (making sure to trail your stops) or by buying it as a long term (over a year) position that you can keep an eye on, collect a dividend, but not have to babysit.