Almost two years to the day that U.S. President Donald Trump first imposed tariffs on imported washing machines and solar panels, the U.S. and China have officially completed a "phase one" trade deal.
Since the deal was announced in mid-December, the S&P 500 has rallied 3.4% on hopes that the phase one deal will create more predictability and stability in the global economy. While all investors are likely relieved to see progress on the trade war front, some companies are benefiting more from the phase one deal than others.
Here are seven phase one trade deal stocks to buy, according to Bank of America.
Baidu Inc (NASDAQ: BIDU)
At the top of the list of trade deal winners is U.S.-listed Chinese stocks. The trade war has weighed on Chinese economic growth, and a weak Chinese economy is bad news for all Chinese stocks, not just those that do business with the U.S.
Baidu is the Chinese market leader in online and mobile search, and analyst Eddie Leung recently said the Chinese version of Google is moving in the right direction by focusing on improving content and customer engagement rather than focusing on adding advertisers. Bank of America has a Buy rating and $183 price target for Baidu stock.
JD.Com Inc (NASDAQ: JD)
JD is one of the e-commerce market leaders in China. JD shares have ripped higher by 18.4% in the month since the phase one deal was announced. Like Baidu, trade deals mean a more stable Chinese economy, which means Chinese consumers will be more likely to spend on JD’s platforms.
Leung says JD’s strategy of focusing on growth in lower-tiered Chinese cities is paying off, and about 70% of the company’s new users now come from these more rural areas of China. Bank of America has a Buy rating and $47.40 price target for JD stock.
Restoration Hardware Holdings, Inc (NYSE: RH)
American companies that do business with China are also big phase one trade deal winners. RH is a U.S. high-end home furnishings retailer that sells items such as furniture, lighting and bathware. RH sells about 40% of its products to China, according to UBS.
Bank of America analyst Curtis Nagle says RH’s differentiated high-end brand helps insulate the company from the online pressures that are hurting many other home furnishings companies. Nagle says steadier, more predictable earnings growth and margins could trigger earnings multiple expansion for the stock. Bank of America has a Buy rating and $235 price target for RH stock.
Advance Auto Parts, Inc. (NYSE: AAP)
Advance Auto Parts is another specialty U.S. retailer that few investors would associate directly with China, yet 35% of the company’s merchandise is exposed to trade war tariffs. Analyst Elizabeth Suzuki says Advance has potential for a significant turnaround under CEO Tom Greco, but simplifying the company’s organizational complexity and improving its global supply chain will be a multi-year effort. Despite the challenges, Suzuki recently named Advance her top hardline retail stock pick of 2020 given the potential for an auto parts rebound this year.
Bank of America has a Buy rating and $190 price target for Advance Auto Parts stock.
Yum China Holdings Inc (NYSE: YUMC)
Following its spin-off from parent company Yum! Brands, Inc. (NYSE: YUM) in 2016, Yum China became the largest restaurant company in China. Yum China operates more than 8,400 restaurants and its revenue is 100% exposed to the China market. Analyst Chen Luo says Yum China has some difficult comps in the fourth quarter, but the company’s long-term growth outlook is extremely bullish.
In addition to its expansion opportunities, Luo says the company’s solid cash flow and balance sheet skews risk to the upside and provides opportunities for additional capital returns. Bank of America has a Buy rating and $50 price target for Yum China stock.
Wynn Resorts, Limited (NASDAQ: WYNN)
Wynn is a U.S. casino operator with multiple resorts on the Las Vegas Strip, but about 75% of its revenue comes from its Macau, China resorts. Wynn shares have been on fire since the phase one deal was announced, gaining 13.4%.
Analyst Shaun Kelley says Macau gross gaming revenue growth has stagnated in recent months, but the trade deal and a potential easing of restrictive policies in Macau following President Xi’s Macau visit in December could be just the type of catalysts the world’s largest gaming hub needs to get back on track. Bank of America has a Buy rating and $140 price target for Wynn stock.
Qorvo Inc (NASDAQ: QRVO)
Semiconductor stock Qorvo was one of the hottest stocks in the market in 2019, gaining more than 91% on the year. In addition, it has the most revenue exposure to China of any Russell 1000 semiconductor stock, according to Goldman Sachs.
In addition to the trade deal, Bank of America analyst Vivek Arya says there are multiple potential bullish catalysts ahead for Qorvo, including the global rollout of 5G wireless networks. In addition, with the stock trading at just 17.4 times forward earnings, Qorvo is one of the few potential value plays within the semiconductor group. Bank of America has a Buy rating and $130 price target for Qorvo stock.
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