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Optimism Rises Ahead of US-China Trade Talks: 6 Gainers

Swarup Gupta

Key stakeholders expressed significant optimism ahead of a crucial round of U.S.-China trade negotiations, slated to start on Jan 30. While Treasury Secretary Steven Mnuchin predicted that substantial progress was likely, White House economic advisor Larry Kudlow said President Trump was optimistic about a favorable outcome to negotiations in the near term.

Additionally, Donald Trump faces significant pressure from sections of loyal voters badly hurt by the trade war. Meanwhile, China’s administration is also looking for a rapid resolution since the conflict has started harming its economy. This is why an end to the conflict is closer than it seems at first glance.

Technology, materials and industrial stocks are likely to benefit the most from such an agreement. Adding stocks from these sectors to your portfolio looks like a smart choice.

Key Stakeholders Express Optimism

On Jan 29, Treasury Secretary Steven Mnuchin, one of the strongest supporters in the Trump administration of a trade agreement with China expressed optimism about upcoming talks for the second successive day. Speaking to Fox Business Network, Mnuchin stated that he believes “significant progress” will be made during this week’s talks, especially on market access and technology transfer.

When questioned about the Huawei investigations, Mnuchin said this case and trade negotiations were “separate issues.” Meanwhile, Larry Kudlow, director of the U.S. National Economic Council, said he was “moderately optimistic” that the United States and China would reach a trade agreement before Mar 2.

Meanwhile, Apple’s AAPL CEO Tim Cook said trade tensions between the United States and China have declined significantly. This has created “more optimism in the air in January.” Recently, Cook had issued a warning about slowing iPhone sales. This was largely attributable to flagging demand in China.

Trump, Xi Under Pressure to Reach Deal

Market watchers largely believe that significant domestic pressure will be the key catalyst for an early resolution to the U.S.-China trade conflict. Countervailing tariffs from China have proved to be extremely popular with the key sections of U.S. industry. Further, loyal voters from diverse regions have expressed resentment against the ongoing trade conflict.

China’s government also faces significant domestic pressure due to the ongoing trade war. An economic slowdown is well in evidence with the world’s second-largest economy exhibiting the slowest pace of growth in more than three decades last year. In fact, growth has declined even further in recent months.

It is, therefore, hardly surprising that China is keen to push through legislation that offers greater protection to foreign companies. The Foreign Investment Law of the People's Republic of China is likely an effort to prevent further heightening of trade tensions with the United States.

If a deal is not reached by Mar 2, Washington has threatened to raise tariffs on $250 billion of China’s exports from 10% to 25%. This is why the draft law seeks to address several of the concerns raised by President Trump at his summit meeting with president Xi in in Buenos Aires late last year.

Our Choices

Key figures from the Trump administration and leading members from industry have expressed optimism that a near-term solution to the U.S.-China trade war is extremely likely. Meanwhile, the political leadership on both sides face tremendous domestic pressure, increasing the chances of a quick trade deal.

Technology, materials and industrials stocks will likely gain the most from this development. This is why it makes sense to pick up select stocks from these sectors at this time. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

Jabil Inc. JBL is one of the largest global suppliers of electronic manufacturing services (EMS).

Jabil carries a Zacks Rank #1 (Strong Buy) and has a VGM Score of B. The company has expected earnings growth of 14.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.6% over the last 30 days.

Fabrinet FN provides precision optical, electro-mechanical and electronic manufacturing services on a global basis.

Fabrinet has a VGM Score of B. The company’s expected earnings growth for the current year is 22.8%. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 30 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arch Coal, Inc. ARCH produces metallurgical and thermal coal, used to manufacture steel and generate electricity.

Arch Coal has a Zacks Rank #2 (Buy) and VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 4.2% over the last 30 days.

Intrepid Potash, Inc. IPI is the largest producer of potash in the United States and is dedicated to the production and marketing of potash and langbeinite, another mineral containing potassium.

Intrepid Potash carries a Zacks Rank #2 and has a VGM Score of A. For the current year, the company has expected earnings growth of more than 100%. The Zacks Consensus Estimate for the current year has improved by 5.8% over the last 30 days.

EnerSys ENS engages in manufacturing, marketing and distribution of various industrial batteries including motive power, reserve power, aerospace and defense applications.

EnerSys carries a Zacks Rank #2 and has a VGM Score of B. The company has expected earnings growth of 9.5% for the current year.

Sealed Air Corporation SEE is a global leader in food safety and security, and product protection.

Sealed Air Corp carries a Zacks Rank #2 and has a VGM Score of B. The company has expected earnings growth of 11.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 30 days.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

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