On Apr 17, both The Wall Street Journal and Bloomberg reported that the United States and China are trying hard to reach a deal to end the prolonged trade-related conflict by early May. President Trump and his Chinese counterpart Xi Jinping could sign the deal later that month or the first week of June.
In this regard, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are likely to reach Beijing in the week of April 29 for the final round of discussion. As a follow up to that procedure, Chinese Vice Premier Liu He is expected to come to Washington in the week of May 6, for the last round of negotiations.
Notably, on Apr 4, President Trump had twitted that a trade deal with China is possible in the next four weeks.
Trade-War Upsets Economy
Wall Street witnessed extreme volatility throughout 2018 primarily owing to trade-related issues. Imposition of tariffs on steel and aluminum by President Trump created a ruckus in the global economy. Notably, the Trump administration has already imposed $250 billion tariffs on Chinese goods while China levied $110 billion of retaliatory tariffs on U.S. imports.
On Apr 9, the International Monetary Fund reduced the global economic growth forecasts for 2019. The new growth projection is 3.3% compared with 3.5% projected in January and 3.7% forecast in October. For the IMF, the prevailing trade conflict between the United States and China is the key concern for the global economy.
National Security Concerns Dominate Trump’s Decision
The Trump administration is gravely concerned about China’s drive to unseat the United States as the primary developer and supplier in the fields of high-tech sophisticated products. The implementation of tariffs stems from the Trump administration’s concern that China is leaving the intellectual property of the American companies vulnerable to theft.
On Mar 27, Reuters reported that China has made unprecedented proposals on a range of issues including the protection of U.S. intellectual properties to resolve the trade disputes. On Apr 4, White House economic advisor Larry Kudlow claimed that China has acknowledged for the first time that the United States has legitimate and genuine concerns about IP theft, forced technology transfer and cyber hacking by Chinese companies.
Other Likely Gains for US
On Jan 18, Bloomberg reported that China has offered to ramp up imports from the United State in the next six years. Total value of the imports will likely be $1.2 trillion, which will bring down the United States’ massive trade deficit with China to zero in 2025. Notably, the United States had a trade deficit of $323 billion with China in 2018.
The U.S. Trade Representative's office said that China has provided assurance of importing "a substantial amount" of agricultural, energy and manufactured goods and services from the United States. The Trump administration wants China to lift tariffs on U.S. agricultural products or at least shift those to other products. If this happens, the trade deal will allow Trump to portrait it as a win for U.S. farmers.
Our Top Picks
The major gainers of a possible trade deal will be those companies that have a strong international exposure especially in China. We have narrowed our search to five such stocks which have moved higher in 2019 so far and still have upside if a trade deal materializes. All five stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows price performance of our five picks year to date.
Qorvo Inc. QRVO provides radio frequency solutions and technologies for mobile device, infrastructure, and defense and aerospace applications worldwide. A massive 75% of its revenues come from China. The stock has surged 26% year to date. The company has an expected earnings growth rate of 17.4% for the current year.
Xilinx Inc. XLNX designs and develops programmable devices and associated technologies worldwide. More than 25% of its revenues come from China. The stock has surged 26% year to date. The company has an expected earnings growth rate of 59.5% for the current year.
KLA-Tencor Corp. KLAC designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries worldwide. A massive 44% of its revenues come from China. The stock has surged 38.2% year to date. The company has an expected earnings growth rate of 5.4% for the current year.
Starbucks Corp. SBUX operates as a roaster, marketer, and retailer of specialty coffee worldwide. More than 10% of its revenues come from China. The stock has surged 16.6% year to date. The company has an expected earnings growth rate of 12.4% for the current year.
YUM! Brands Inc. YUM develops, operates and franchises quick service restaurants worldwide. More than 10% of its revenues come from China. The stock has surged 10.4% year to date. The company has an expected earnings growth rate of 20.2% for the current year.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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Qorvo, Inc. (QRVO) : Free Stock Analysis Report
Starbucks Corporation (SBUX) : Free Stock Analysis Report
Yum! Brands, Inc. (YUM) : Free Stock Analysis Report
Xilinx, Inc. (XLNX) : Free Stock Analysis Report
KLA-Tencor Corporation (KLAC) : Free Stock Analysis Report
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