U.S. stocks posted strong gains in the last couple of trading sessions, mostly because China indicated that it won’t react to the recent U.S. tariffs immediately. Ministry of Commerce spokesman Gao Feng confirmed that it is time to discuss measures to remove tariffs to prevent an escalation in the trade war.
Lest we forget, troubles began after China announced plans of imposing new tariffs of 5% to 10% on nearly $75 billion of U.S. products. Beijing clarified that the move in reaction to the Trump administration’s intention to impose 10% tariffs on $300 billion of Chinese imports.
Trump, in the meantime, acted in response to China’s decision by saying that the United States will increase tariffs on $250 billion of Chinese goods to 30% from an earlier 25%. And tariffs on additional $300 billion imports from China would go up to 15% from 10%.
Nonetheless, a possible indication of a truce between two of the world’s largest economies has alleviated risks in the equity market for now. A full-blown trade war would have had rippling effects on the global economy growth, casting a pall over businesses. Let us now look at stocks that have benefitted from the easing trade tensions:
Potential Winners as China Tamps Down Trade War Escalation
As mentioned earlier, progress in trade talks has helped the Dow components, especially, The Boeing Company BA. After all, the aerospace giant sells about a fourth of its commercial aircraft to Chinese customers.
And how can we forget that China had threatened to impose tariffs on several American products, including airplanes if there is no trade truce. Such a move could easily affect Boeing’s 737-800, 737-700 and 737-900 ER models. But, with tariff scares behind us for now, Boeing has ample reasons to rejoice.
Within the Dow, Intel Corporation INTC in particular is expected to gain immensely. This is because Intel more or less generates bulk of its revenues from China, and it’s more than what the semiconductor company makes in the United States.
China, in fact, relies heavily on U.S. chipmakers, while semiconductors make up one of its largest import categories in terms of value. Hopes of abatement in U.S.-China trade tensions provided strength to the chip sector. To top it, China’s latest plan to spur economic growth will surely boost semiconductor stocks, especially those in the region, in the near term as well. China is expecting to roll out a plan to improve disposable income this year.
The broader tech sector has also a lot to gain from reduced trade war fears. The components of the SPDR Technology Select Sector had seen significant amount of revenues coming from China in recent years. In fact, China is in the second place in terms of revenue generation, behind the United States.
4 Top Picks
As trade war worries dissipate and broader markets move north, investing in stocks from the aforesaid sectors which are making the most of the recovery seems judicious. We have, thus, selected four stocks that can make the most of the encouraging trend. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
AGCO Corporation AGCO manufactures and distributes agricultural equipment and related replacement parts worldwide. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 2.2% in the last 60 days. The company’s expected earnings growth rate for the current year is 29.6% against the Manufacturing - Farm Equipment industry’s projected decline of 7.4%.
Alphabet Inc. GOOGL provides online advertising services worldwide. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 7.8% in the last 60 days. The company’s expected earnings growth rate for the current year is 14.3%, compared with the Internet - Services industry’s projected rally of 5.8%.
KLA Corporation KLAC designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries worldwide. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 3.6% in the last 60 days. The company’s expected earnings growth rate for the current year is 11.4%, compared with the Electronics - Miscellaneous Products industry’s estimated rally of 0.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Microsoft Corporation MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 2.4% in the last 60 days. The company’s expected earnings growth rate for the current year is 9.9%, compared with the Computer - Software industry’s projected rally of 1.1%.
In fact, shares of AGCO, Alphabet, KLA and Microsoft have gained 23.1%, 14.3%, 63.6% and 36% respectively, so far this year. Take a look —
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