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Buy These 5 Top Tech Stocks Ahead of Phase-One Trade Deal

Nalak Das

The nearly two-year long trade-related conflict between the United States and China may finally see an amicable solution on Jan 15. High-level trade delegations from both countries are likely to sign an interim trade deal, popularly known as the phase-one trade deal in Washington.

Although a final and phase-two deal is unlikely before the next U.S. presidential election scheduled to be held in November 2020, the much-hyped phase-one deal at least will not escalate tariff tensions between the two largest trading nations of the world.

Most of the economists have expressed confidence that the partial trade deal will be a major catalyst for a global economic revival besides stabilizing the Chinese economy and giving a boost to the sagging U.S. manufacturing industries.

Phase-One Trade Deal

U.S. Trade Representative Robert Lighthizer said the deal will address intellectual-property disputes and force technology transfer along with strong enforcement provisions in financial services and currency issues in addition to tariff rollback and higher agricultural purchase. The U.S. government has decided to delete China from its list of currency manipulators.

U.S. Treasury Secretary Steven Mnuchin said China has committed to buy $40 billion to $50 billion U.S. agricultural products annually and a total of $200 billion of U.S. goods over two years. The Trump administration may rollback some the tariffs already imposed on China.

On Dec 23, Wall Street Journal reported that China’s cabinet has agreed to lower tariffs for all trading partners on more than 859 types of products including pharmaceuticals, frozen pork and some high-tech components to below the rates that the most-favored nations enjoy.

Technology Sector to Benefit Most

China is the largest trading partner of the United States. A strong economy in China, the largest market for high-tech products, will give U.S. technology companies a solid boost. Moreover, China plays the role of a low-cost supplier of intermediary products and other inputs to high-tech U.S. industries.

An end to the U.S.-China trade spat is likely to restore Chinese and global economic growth, which in turn will create demand for high-tech U.S. products. Likewise, the repeal of tariffs on Chinese intermediary goods should raise the profit margin of U.S. tech giants. Moreover, clinching an agreement with China, which will strictly protect U.S. intellectual properties, will be immensely beneficial for the home-grown tech behemoths.

Moreover, several news agencies have reported that China has made unprecedented proposals on a number of issues including the protection of U.S. intellectual properties to resolve the trade disputes. The Asian economic giant has acknowledged that the United States has legitimate and genuine concerns about IP theft, forced technology transfer and cyber hacking by Chinese companies.

Our Top Picks

At this stage, it will be lucrative to invest in tech stocks that have considerable exposure on China. We have been able to narrow down our search to five stocks that have popped in the past year and still hold potential to provide further upside. All five stocks currently carry either a Zacks Rank #1 (Strong Buy) or 2 (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 year.

Apple Inc. AAPL designs, manufactures and sells iPhone, iPad, iPod, Apple TV, Mac personal computers, Apple Watch, HomePod and AirPods. These devices are powered by software applications including iOS, macOS, watchOS and tvOS operating systems. It also provides iCloud, Apple Pay and a variety of other accessory, service and support offerings to its customers.

The company has an expected earnings growth rate of 10.7% for the current year (ending September 2020). The Zacks Consensus Estimate for the current year has improved 0.8% over the last 60 days. The Zacks Rank #2 stock has rallied 107.1% in the past year.

Applied Materials Inc. AMAT provides manufacturing equipment, services and software to the semiconductor, display, and related industries. It operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets.

The company has an expected earnings growth rate of 24% for the current year (ending October 2020). The Zacks Consensus Estimate for the current year has improved 9.3% over the last 60 days. The Zacks Rank #1 stock has jumped 83.1% in the past year.

NVIDIA Corp. NVDA is a worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU, which is a high-performance processor generating realistic, interactive graphics on workstations, personal computers, game consoles and mobile devices.

The company has an expected earnings growth rate of 30.5% for the current year (ending January 2021). The Zacks Consensus Estimate for the current year has improved 9.3% over the last 60 days. The Zacks Rank #2 stock has climbed 68.1% in the past year.

Microchip Technology Inc. MCHP develops and manufactures microcontrollers, memory and analog, and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks.

Although the company has negative expected earnings growth for the current year (ending March 2020), its expected growth rate for next year (ending March 2021) is 15.9%.  The Zacks Consensus Estimate for the current and next year has improved 1.9% and 3.6%, respectively, over the last 60 days. The Zacks Rank #1 stock has soared 48.3% in the past year.

Alphabet Inc. GOOGL is a global Internet-based tech leader. It provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce and hardware products.

The company has an expected earnings growth rate of 17.5% for the current year. The Zacks Consensus Estimate for the current year has improved 0.1% over the last 60 days. The Zacks Rank #2 stock has surged 32.5% in the past year.

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Click to get this free report Alphabet Inc. (GOOGL) : Free Stock Analysis Report Apple Inc. (AAPL) : Free Stock Analysis Report NVIDIA Corporation (NVDA) : Free Stock Analysis Report Microchip Technology Incorporated (MCHP) : Free Stock Analysis Report Applied Materials, Inc. (AMAT) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research