On Sep 24, President Trump inked his first major trade agreement with South Korea at a meeting in New York. Hailing the deal, Trump said that it would go a long way toward tacking the trade deficit between the two countries. It would also provide fresh scope for U.S. exports to South Korea.
The signing of the deal has created optimism among experts that other trade disputes, especially with China will eventually be resolved. Meanwhile, Trump claims that U.S. auto, pharma and agricultural products will gain from the deal with South Korea. Picking stocks from these sectors looks prudent at this point.
Deal Aimed at Addressing Balance of Trade
The agreement concluded with South Korea’s president Moon Jae-in is a revised version of a preexisting agreement between the two countries. Known as KORUS or the United States-Korea Free Trade Agreement, the deal was initially concluded in 2012. It has enabled the two countries to sell more than $60 billion in goods to each other over the last six years.
As a result, South Korea is now the United States’ sixth-largest trading partner. But the Trump administration had expressed alarm over the fact that the deal has given South Korea the edge in terms of trade between the two countries. In 2016, the United States had a $27 billion trade deficit with South Korea.
Autos, Pharma, Agricultural Products to Gain
This is why Trump decided to renegotiate the terms of the deal, resulting in some minor, but crucial changes. According to Trump, the new “very big deal” would go a long way toward addressing the trade deficit between the two countries.
Trump thinks that the revised agreement is “fair and reciprocal.” It will also provide fresh opportunities for the United States to increase exports of auto, pharma and agricultural products to South Korea. In order to achieve higher auto exports, several regulatory burdens on U.S. automakers have been removed by South Korea.
Additionally, a 25% U.S. tariff on Korean trucks has been lifted while a cap on U.S. car exports to South Korea which do not adhere to that country’s safety standards have been removed. Trump has also exempted South Korea from the new 25% tariff on global steel. Instead, South Korea will only export 70% of the steel it is already selling to the United States.
Critics have described the agreement with South Korea as incremental and potentially ineffective in terms of increasing U.S. exports. However, its beneficial impact on several U.S. companies cannot be ruled out. Further, it sets the tone for the resolution of other lingering trade disputes, notably with China.
Investing in stocks of companies producing auto, pharma and agricultural products looks like a smart option at this point. 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.
Archer Daniels Midland Company ADM is one of the leading food processing companies in the world.
Archer Daniels has a Zacks Rank #1 (Strong Buy) and VGM Score of A. The company has expected earnings growth of 41.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the last 30 days.
Meritor, Inc. MTOR is a global automotive parts manufacturer and supplier.
Meritor sports a Zacks Rank #1 and has a VGM Score of A. The company has expected earnings growth of 57.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.7% over the last 60 days.
Allison Transmission Holdings, Inc. ALSN is a designer and manufacturer of fully-automatic transmissions for commercial and defense vehicles.
Allison Transmission has a VGM Score of B. The company has expected earnings growth of 66.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 11.3% over the last 60 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Alamo Group Inc. ALG is a leader in the design, manufacture, distribution and service of high quality equipment for agriculture, infrastructure maintenance and other applications.
Alamo carries a Zacks Rank #2 (Buy) and has a VGM Score of A. It has expected earnings growth of 28.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.9% over the last 60 days.
Bristol-Myers Squibb Company BMY is a global specialty biopharmaceutical company focused on the development of treatments targeting serious diseases.
Bristol-Myers has a Zacks Rank #2 and VGM Score of B. The company has expected earnings growth of 20.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.4% over the last 60 days.
Celgene Corporation CELG is a biopharmaceutical company focused on the discovery, development and commercialization of drugs targeting cancer and inflammatory diseases.
Celgene has a Zacks Rank #2 and VGM Score of B. The company has expected earnings growth of 17.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.4% over the last 60 days.
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