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5 Potential Winners as US-China Trade Conflict Lingers

Nalak Das
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The ongoing trade conflict between United States and China is showing no signs of abatement. President Trump’s imposition of tariffs on Chinese imports in March triggered the trade war and it has only escalated with time. On May 15, Terry Branstad, the U.S. Ambassador to China, stated that the United States and China are "very far apart" on a resolution to the trade war.

President Trump’s decision to impose tariffs does not sit well with U.S. companies that rely on Chinese imports. However, Trump’s stance on tariffs is likely to hike in product prices consequently aiding the U.S. manufacturing industry. That is why investment in some of these stocks with a favorable Zacks Rank should prove to be lucrative.

Trade Conflict Looms Large

In the first week of May, a high-level U.S. delegation led by the Treasury Secretary Steven Mnuchin visited China to sort out differences of opinion between the two countries. The delegation took a hard line approach bargaining with China. Munchin handed over a letter demanding a list of actions that the United States wants China to resolve immediately.

Trump administration wants China to eliminate all unfair means that the United States believes China is resorting to in bilateral trade. The primary among the demands being complete roll back of intellectual property theft.

The U.S. delegation demanded a $200 billion cut in Chinese trade surplus with the United States, which currently stands at more than $375 billion per annum. Moreover, the U.S. government wants China to provide a clear-cut time schedule through which it will open the country’s market to U.S. exports.

China has refrained from committing to any U.S. demands so far. The two countries will again sit for a second round of trade negotiation talk this week. However as things stands, it is highly unlikely that any concrete solution is likely to emerge from this round of meeting as well.

More Tariffs on the Horizon  

On March 2018, the United States levied tariffs worth of $50 billion on China. Nearly 1,300 Chinese products which are utilized in high-tech sectors like industrial robots, information technology, communication technology, aerospace and medicine bore the brunt of the tariffs. China also retaliated by imposing tariffs worth of $50 billion primarily on U.S. agricultural exports.

The Trump administration is likely to release a list detailing further tariffs on China, to be worth $100 billion. Per a Reuters report dated May 2, President Trump is contemplating issuing an executive order to restrict select Chinese telecommunications companies from selling products in the United States.

Our Choices

A hike in product prices will certainly help U.S. manufacturers which engage in producing goods on which tariff will be levied. Companies producing industrial robots, communication satellites, aviation and a slew of semiconductors will be major gainers. Additionally, producers of wireless equipment, medicine and intermediate goods like machinery and chemicals will also benefit.

At this stage, investors will be better of investing in U.S. manufacturing companies, which are expected to benefit the most from upcoming U.S. tariffs on China. We have narrowed down our search to the following stocks carrying either Zacks Rank #1 (Strong Buy) or 2 (Buy) with strong growth potential.

Chart below depicts price performance of our five picks in the last three months.



 

Mellanox Technologies Ltd. MLNX is a leading supplier of semiconductor-based interconnects products to world-class server, storage, and infrastructure OEMs.

Mellanox has expected earnings growth of 78.5% for current year. The Zacks Consensus Estimate for the current year has improved by 10.3% over the last 30 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Viavi Solutions Inc. VIAV provides software and hardware platforms and instruments for telecommunications service providers, wireless operators, cable operators, network-equipment manufacturers and enterprises.

Viavi carries a Zacks Rank #2. The company has expected earnings growth of 10% for current year. The Zacks Consensus Estimate for the current year has improved by 10% over the last 30 days.

Motorola Solutions Inc. MSI is engaged in providing communication equipment, software and services. It focuses on providing public safety communications.

The stock carries a Zacks Rank #2. The company has expected earnings growth of 23.8% for current year. The Zacks Consensus Estimate for the current year has improved by 2.3% over the last 30 days.

AudioCodes Ltd. AUDC is a vendor of advanced voice networking and media processing solutions for the digital workplace.

The stock carries a Zacks Rank #2. The company has expected earnings growth of 21.6% for current year. The Zacks Consensus Estimate for the current year has improved by 4.7% over the last 30 days.

Cisco Systems Inc. CSCO is an IP-based networking company, also offering other products and services to service providers, companies, commercial users and individuals.

The stock carries a Zacks Rank #2. The company has expected earnings growth of 7.5% for current year. The Zacks Consensus Estimate for the current year has improved by 0.4% over the last 30 days.

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