The year-old trade conflict between the United States and China, which looked like being close to resolution in the first four months of this year, has been deteriorating again since the first week of this month. According to CNBC, the U.S.-China trade negotiations appear to have been stalled as it remains unclear what the two sides will discuss.
Consequently, trade-sensitive stocks, especially the ones that have large exposure to China or other international markets, lost a good chunk of value. At this juncture, it will be prudent to invest in domestic business-focused stocks with a favorable Zacks Rank.
Trade War Resurfaces
Wall Street faced extreme volatility following President Donald Trump’s tweet on May 5, in which he expressed his displeasure about the progress of U.S.-China trade negotiations and threatened to hike tariffs on Chinese goods.
On May 10, the U.S. government hiked existing tariff rates to 25% from 10% on $200 billion of Chinese exports. In 2018, the Trump administration imposed 25% tariff on $50 billion of Chinese goods. Moreover, President Trump threatened to levy 25% tariff on another $325 billion of Chinese goods.
China had imposed $110 billion tariffs on U.S. exports in 2018. Following the hike of U.S. tariff, the Chinese authority imposed 25% tariff on an additional $60 billion U.S. goods effective Jun 1, 2019.
Trump Declares National Emergency in Telecom
On May 15, President Donald Trump issued an executive order declaring a national emergency, preventing U.S. corporates from using information and communications technology equipment from sources as this “poses an unacceptable risk to the national security of the United States.”
Following the order, the Department of Commerce added Chinese telecom behemoth Huawei Technologies and its affiliates to the Bureau of Industry and Security (BIS) Entity List. Another Chinese telecom giant ZTE may also face the same fate. The latest move by the U.S. government further jeopardized the lingering trade-related disputes between the two countries.
Global Economic Slowdown Concerns
Markets are uncertain about when the U.S.-China trade tension will be resolved or if at all they will be. President Trump added to the prevailing ambiguity on May 13, when he said that people will come to know whether a trade deal is at all possible in the next three to four weeks.
If no progress is made at all and a full- fledged trade war rages, then in addition to these two countries, the global economy will also see a slowdown. On Apr 9, the IMF reduced global economic growth forecast for 2019 to 3.3% compared with 3.5% projected in January and 3.7% forecast in October. The IMF cited trade-related conflict as the primary reason for lowering global economic growth rate.
Why Domestic Stocks?
Investors are concerned that intensifying trade conflict will hurt sales of U.S. multinational companies as their products will be vulnerable in the international markets. Domestic business oriented companies are mostly immune to any external shocks since the United States is the lone market for their products. This will help them to outperform the broader market defying extreme volatility.
Our Top Picks
At this stage, investment in domestic business-focused stocks with strong growth potential will be lucrative. We have been able to narrow down our search to five stocks, which have moved higher in the past month and still have upside left. All five stocks currently sport 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 in the past month.
SB One Bancorp SBBX provides commercial banking and related financial services to individual, business and government customers in the United States. The company has expected earnings growth of 36% for the current year. The Zacks Consensus Estimate for the current year has improved 9.9% over the past 30 days. The stock has gained 2.7% in the past month.
Camden National Corp. CAC provides commercial and consumer banking products and services to consumer, institutional, municipal, non-profit and commercial customers in the United States. The company has expected earnings growth of 10.6% for the current year. The Zacks Consensus Estimate for the current year has improved 5.6% over the past 30 days. The stock has gained 4.8% in the past month.
Middlesex Water Co. MSEX owns and operates regulated water utility and wastewater systems in the United States. The company has expected earnings growth of 10.7% for the current year. The Zacks Consensus Estimate for the current year has improved 5.9% over the past 30 days. The stock has gained 13% in the past month.
The Joint Corp. JYNT develops, owns, operates, supports and manages chiropractic clinics in the United States. The company has expected earnings growth of 475% for the current year. The Zacks Consensus Estimate for the current year has improved 9.5% over the past30 days. The stock has gained 3.5% in a month’s time.
NexPoint Residential Trust Inc. NXRT is focused on acquiring, owning and operating well-located middle-income multifamily properties in the United States. The company has expected earnings growth of 11.7% for the current year. The Zacks Consensus Estimate for the current year has improved 1% over the past 30 days. The stock has gained 13.8% in the past month.
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Middlesex Water Company (MSEX) : Free Stock Analysis Report
SB ONE BANCORP (SBBX) : Free Stock Analysis Report
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NexPoint Residential Trust, Inc. (NXRT) : Free Stock Analysis Report
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