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5 Tariff-Sensitive Stocks to Buy as China Softens Stance

Tirthankar Chakraborty

The trade-sensitive stocks gained in the recent trading session, with Beijing lifting tariffs on some U.S. products amid the trade tensions. As a show of goodwill, President Trump delayed tariff hikes against China.

The truce between two of the world’s largest economies has alleviated risks in the equity market for now as a full-blown trade war would have had far-reaching impact on the global economy.

Investors can take a look at trade-sensitive stocks that have benefitted from the easing trade tensions.

China Lifts Tariffs on Some U.S. Products

China has, recently, exempted a number of U.S. goods from tariffs, which is being viewed show of good gesture ahead of the planned talks regarding the trade tensions.  

Per South China Morning Post citing the Customs Tariff Commission of the State Council, the exemptions will take effect on Sep 17. The products don’t include big ticket items like agricultural products, but it does include items such as alfalfa pellets, fish feed and medical linear accelerators, to name a few.

Barclays’ analysts have rightly pointed out that “these adjustments signal that China is more willing to make progress in the October trade talks, likely toward striking a 'narrow' agreement that involves China buying more US goods in exchange for the US suspending further tariff hikes.”

Trump Delays Tariff Hikes Against China

President Trump reciprocated by announcing a delay in implementation of higher tariffs on $250 billion of Chinese goods. Trump tweeted that tariff hikes from 25% to 30% will now go into effect on Oct 15 rather than the previously scheduled Oct 1.

Trump is of the opinion that the trade war has affected China more as the trade tensions impacted supply chains of many companies compelling them to shift operations away from China.

Analysts believe that the scenario may get even better in the coming weeks with more deals happening, which will help China buy more U.S. products in exchange for the United States lifting some restrictions on Chinese telecom major, Huawei.

Potential Winners as China Softens Stance on Tariffs

Trade-sensitive stocks including technology and industrials saw their shares scale northwards after China softened its approach. And why not? The broader tech sector has also a lot to gain from reduced trade war fears. The components of the SPDR Technology Select Sector had gained significant revenues from China in recent years. In fact, China is in the second place in terms of revenue generation, behind the United States.

Hopes of abatement in U.S.-China trade tensions also provided strength to the chip sector. China, in fact, relies heavily on U.S. chipmakers, while semiconductors make up one of its largest import categories in terms of value.

The Dow Jones Industrial Average, by the way, jumped 227.61 points, or 0.9%, to 27,137.04 in its last trading session, closing above 27,000 for the first time since July. In fact, 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. Shares of Boeing improved 3.6% on September 11.

5 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 a prudent move. We have, thus, selected five stocks that can make most of the encouraging trend. These stocks also carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO Corporation AGCO manufactures and distributes agricultural equipment and related replacement parts worldwide. The Zacks Consensus Estimate for its current-year earnings has increased 3.7% in the last 60 days. The company’s expected earnings growth rate for the current year is 31.1% against the Manufacturing - Farm Equipment industry’s projected decline of 4.7%.

Alphabet Inc. GOOGL provides online advertising services worldwide. The Zacks Consensus Estimate for its current-year earnings has increased 8% in the last 60 days. The company’s expected earnings growth rate for the current year is 13.5%, compared with the Internet - Services industry’s projected rally of 4.6%.

KLA Corporation KLAC designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries worldwide. 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 0.1%.

Microsoft Corporation MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The Zacks Consensus Estimate for its current-year earnings has improved 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%.

Lattice Semiconductor Corporation LSCC develops and sells semiconductor technologies in Asia, Europe, and the Americas. The Zacks Consensus Estimate for its current-year earnings has increased 16.3% in the last 60 days. The company’s expected earnings growth rate for the current year is 72.7%, against the Electronics - Semiconductors industry’s estimated decline of 4.1%.

In fact, shares of AGCO, Alphabet, KLA, Microsoft and Lattice Semiconductor have gained 38.6%, 16.7%, 68.3%, 34% and 190.9% respectively, so far this year. Take a look —

 

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Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
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