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5 Tariff-Proof Stocks to Own as Trade War Deepens

Tirthankar Chakraborty

President Trump’s unwavering resolve to levy hefty import duties on Chinese goods, despite China’s announcement of new tariffs on nearly $60 billion of U.S. exports, shows how he wants China to agree to the negotiated trade terms.

But, the intensifying Sino-American trade squabble is doing no good to the stock market. In fact, major bourses recently witnessed their worst trading day in months. But, instead of panicking, investors should zero in on tariff-proof stocks that stand to gain from the all-out trade war.

China’s Media Calls for ‘People’s War’

China’s government-controlled media reassured citizens that China’s economy is capable of handling the recently-imposed tariff hike. Talks in Washington ended without an agreement after the United States raised tariffs on $200 billion of Chinese imports to 25% from 10%.

The People's Daily said that “the trade war in the United States is the creation of one person and his administration who have swept along the entire population of the country. Whereas the entire country and all the people of China are being threatened. For us, this is a real ‘people’s war.”

China said that it would levy higher tariffs on an array of U.S. products, including frozen vegetables and liquefied natural gas. China’s finance ministry is expected to increase import tariffs from 5% to 25% on Jun 1, and include almost 5,140 U.S. goods.

The ministry added that “China’s adjustment on additional tariffs is a response to U.S. unilateralism and protectionism.” But, they hope that the United States “will get back to the right track of bilateral trade and economic consultations and meet with China halfway.”

Trump Said China ‘Broke the Deal’

Trump accused Beijing of defaulting on commitments it made during months of trade negotiations. Trump criticized trade imbalances between the countries. Protection of intellectual property rights by the way continues to be a bone of contention for the economies. Beijing, however, remained defiant. The People’s Daily, said that “at no time will China forfeit the country’s respect, and no one should expect China to swallow bitter fruit that harms its core interests.”

The situation may worsen as Trump threatened to levy tariffs on all Chinese goods with America. And this means imposing tariffs on the remaining $325-billion worth of Chinese products. His moves will invariably affect more than 5,000 China-made products.

Trade War Consequences

Investors are worried that the trade war might destabilize an already-slowing global economy and raise tensions between the superpowers regarding South China Sea and industrial espionage. Both the nations in fact are expected to bear the burden of trade war escalation.

Due to the tariffs, Chinese goods will surely be more costly compared to U.S. products. And if consumers start buying U.S. products, prices will move north. So, in both cases, U.S. consumers will bear the cost. China won’t be spared either. The country uses the dollars it earns from exports to buy goods across the globe. But, due to trade tensions, China won’t have many dollars to pay for its imports.

Gold Glitters on Trade Uncertainty

Gold prices, in the meantime, recently registered its best day in nearly three months. This is because golds are generally perceived as guarded against market turmoil triggered by China’s move to hit back over U.S. tariffs.

Phillip Streible, senior commodities strategist at RJO Future, added that “geo political risks are rising, trade tensions escalating, the dollar is down and equities are really under pressure - all these factors are boosting gold prices right now.”

Notably, gold mining companies that are recently doing well are AngloGold Ashanti Limited AU and NovaGold Resources Inc. NG. While AngloGold Ashanti flaunts a Zacks Rank #1 (Strong Buy), NovaGold Resources has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of AngloGold Ashanti Limited and NovaGold Resources are up 2.7% and 0.3%, respectively, so far this month.

Utilities Are Safe Bet

As markets seem to be plagued by widespread uncertainty, defensive stocks like utilities are gaining as they seem to be the safest investment option. And why not? Utility stocks are generally non-cyclical, or companies whose business performance and sales are not highly correlated with activities in the larger market. Their products are in constant demand, irrespective of market volatility. Moreover, utilities are deemed defensive stocks as electricity, gas and water are essentials.

Prominent among utility players is owner and operator of regulated water utility and wastewater systems, Middlesex Water Company MSEX, and operator of regulated natural gas distribution ONE Gas, Inc. OGS. While Middlesex Water Company currently flaunts a Zacks Rank #1, ONE Gas has a Zacks Rank #2.

Shares of Middlesex Water Company and ONE Gas are up 16.5% and 11.1%, respectively, on a year-to-date basis.

Service Firms to Gain: Facebook Stands Out

Service firms are safe bets because such firms are unperturbed by trade retaliations as they have less foreign sales exposure compared to goods companies. Service stocks also have less foreign input cost that might be subject to tariffs. Such input costs mostly include direct materials, labor and factory overheads.

And the best service firm, no doubt, is Facebook Inc FB. Mark Mahaney, lead technology analyst at RBC Capital Markets, said that Facebook, unlike other tech stocks, have a low exposure to China at roughly 1% to 2%. Additionally, Facebook is less pricey when its price-earnings ratio is considered.

Facebook currently has a Zacks Rank #2. Shares of Facebook have surged 38.5% so far this year, more than the Internet - Services industry’s rally of 18.6%.

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