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5 Top Picks to Stay Safe Amid Renewed U.S.-China Tariff War

Nalak Das

The year-old trade conflict between the United States and China is likely to be prolonged as tariff war has started once again. As indicated by President Donald Trump earlier this week, the U.S. government hiked tariff rates to 25% from 10% on $200 billion Chinese exports.

China's Commerce Ministry has also warned that it will impose retaliatory tariffs on U.S. exports to counter its aggressive stance. So far, the U.S. government has levied 25% tariff on $250 billion of Chinese goods while China has imposed $110 billion tariffs on U.S. goods. Moreover, Trump also threatened to impose 25% tariff on additional $325 billion of Chinese goods any time soon.

Per the Office of the U.S. Trade Representative, the country imported $539.5 billion of goods from China in 2018. U.S. trade deficit with China was at $419.2 billion last year. Therefore, virtually all Chinese goods will face U.S. tariffs if the Trump administration levies duties on all proposed items.

Trade Conflict Likely to Prolong  

Trade tension between the United States and China started in March 2018, when the Trump administration levied tariffs of 25% on imported steel and 10% on imported aluminum from several countries including the Asian super power. Although, trade conflicts with other countries were solved by and large last year, tensions with China intensified day by day, resulting in severe stock market volatility and the worst performance of Wall Street in a decade.

Trade war appeared to be heading for an amicable solution this year as both countries showed urgency since it is affecting not only the combatants, but also other economies. However, the trade spat heightened yet again when it was finally moving toward mutual agreement.

U.S. officials are accusing China of “erosion of commitments” and backtracking on promises made during the negotiation process. Though a Chinese delegation led by vice premier Liu He is currently in Washington for the latest round of trade talk this week , the possibility of a deal is uncertain.

Notably, The Wall Street Journal reported that Chinese delegation adopted a rigid attitude in the final phase of negotiation buoyed by their assessment that the U.S. government will finally compromise on hard stances on negotiation. Recently President Trump criticized Fed chair Jerome Powell of not lowering interest rate, which was taken by China as a sign that all is not well in the U.S. economy.

It is widely considered in the U.S. financial circle that President Trump perhaps wants stock markets to be steadied before next Presidential election due next year. A strong U.S. economy and solution to the trade problem will strengthen both consumer and business confidences. This will surely result in a bull run in Wall Street.

The Chinese administration is trying to delay the trade deal so that it can affect U.S. GDP and generate volatility in stock markets. China’s government may wish to deal with a new U.S. administration rather than a hard bargainer like President Trump.

Our Top Picks

At this juncture, investing in defensive sectors such as utilities, telecom and consumer staple will be fruitful. Defensive stocks are generally immune to the vagaries of the economic cycle. That’s because these companies provide basic services like food, electricity, gas, water and communications, which can never go out of demand. We have narrowed down our search to five stocks with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

The Chefs' Warehouse Inc. CHEF is a distributor of specialty food products in the United States. It serves the specific needs of chefs who own and/or operate restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools and specialty food stores. The company has an expected earnings growth rate of 32.1% for the current year. The Zacks Consensus Estimate for the current year has improved 6.2% over the last 60 days.

Middlesex Water Co. MSEX treats, stores and distributes water for residential, commercial, industrial and fire prevention purposes. The company has an expected earnings growth rate of 10.7% for the current year. The Zacks Consensus Estimate for the current year has improved 5.9% over the last 60 days.

SJW Group SJW engages in the production, purchase, storage, purification, distribution, wholesale and retail sale of water. The company has an expected earnings growth rate of 29.1% for the current year. The Zacks Consensus Estimate for the current year has improved 11.4% over the last 60 days.

Avon Products Inc. AVP manufactures and markets beauty and related products in Europe, the Middle East, Africa, south Latin America, north Latin America, and the Asia Pacific. The company has an expected earnings growth rate of 466.7% for the current year. The Zacks Consensus Estimate for the current year has improved 21.4% over the last 60 days.

EXFO Inc. EXFO develops, manufactures, and markets smarter network test, monitoring, and analytics solutions for communications service providers, network equipment makers, and Web-scale operators. The company has an expected earnings growth rate of 133.3% for the current year. The Zacks Consensus Estimate for the current year has improved 5% over the last 60 days.

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