Five companies with huge exposure to China

 

The financial news headlines have been dominated by articles related to China in recent months. President Trump made a campaign promise to battle the U.S.’s trade imbalance with China and he has certainly been ratcheting up the pressure on America’s biggest trading partner in recent months.

It is no secret that the U.S. has a huge trade deficit with China. This has been the case for decades, and is nothing new, but the question of how to address the $370 billion trade deficit is not an easy riddle to solve. Trump wants to lower the trade deficit by $200 billion, but the likelihood of accomplishing such a fear seems far-fetched in my opinion.

The quickest way to combat the trade imbalance is with tariffs, but the danger of U.S. imposed tariffs is that China, among other countries, will react with their own tariffs, which will in turn spark an all-out trade war that threatens the health of the global economy.

Of course, nothing is set in stone just yet, and this week will see both countries meet to discuss future moves. Trump appears willing to negotiate, and just over the weekend announced his intention to help Chinese electronics maker ZTE, which was on the brink of collapse after U.S. imposed penalties on it last month for breaking sanctions against Iran and North Korea. The U.S. forbid American companies from selling products to the company for seven years, resulting in the company announcing last week it would have to shut down major operations.

Trump appears willing to work with China to help save ZTE – a move that could give him more leverage in ongoing trade discussions. China, for its part, has stated that it is willing to buy more American goods and services to help reduce the trade deficit. Will any meaningful chances come out of the current discussions? Time will tell, but it is still a volatile situation, and companies with big exposure in China should be worried, as should their investors.

Here are five companies that have high exposure in China that investors should be aware of.

Skyworks Solutions

Skyworks Solutions (SWKS) is a semiconductor manufacturer. The company has a large amount of exposure to the Chinese market, where it generates around 85% of its total sales. SWKS has trended lower over the last two months, but should trade tensions continue to ease the stock should quickly erase its recent losses and more. The stock has already started to rebound, with shares up 2.0% on the day following news that President Trump was willing to work with China in order to help save China’s ZTE electronics company. SWKS currently trades at $98.82 with an average price target of $115.38.

Chart courtesy of www.stockcharts.com

Wynn Resorts

Resort and casino operator Wynn Resorts (WYNN) relies heavily on the Chinese gaming market. The company pulls in around 75% of its total revenues from China. WYNN has enjoyed steady gains over the last year, weathering a sexual misconduct scandal centered around the company’s founder – Steve Wynn. Mr. Wynn has liquidated his holding in the company, which in March announced it would issue a 4.9% stake to one of its biggest competitors in the Chinese market – Galaxy Entertainment, a deal worth around $1 billion. WYNN’s license in Macau will expire in 2022, and cutting ties with Mr. Wynn and having a local partner greatly increases the company’s chances of extending its license. It should also give WYNN an advantage when the time comes to apply for a license in Japan, which is preparing to legalize gambling, and whose market could generate $25 billion in revenue when casinos begin to operate in the country in 2023. WYNN trades at $191.62 with an average price target of $205.25.

Chart courtesy of www.stockcharts.com

NVIDIA

Chip maker NVIDIA (NVDA) has enjoyed the cryptocurrency wave over the last couple of years, but its fate does lay heavily with a positive outcome to the current U.S./China trade negotiations. NVIDIA gets around 19% of its total sales from China, so there is a real reason for alarm should the two countries decide not to play nice, and a true trade war does develop. The stock is currently trading just shy of its all-time high, although it did run into a very small amount of selling pressure after its most recent quarterly report when investors saw a possible easing of demand from the crypto market. Enthusiasm quickly returned to the stock, and with trade concerns easing, the stock is likely to continue building on its recent gains. NVDA trades at $256.18 with an average price target of $251.45.

Chart courtesy of www.stockcharts.com

Corning

Corning (GLW) manufactures and sells specialty glasses and related materials to the tech industry, with the company getting roughly 22 percent of its total sales from China. The stock has trended steadily lower since early 2018, but shares have enjoyed a small rally over the last week as optimism has increased that the U.S. and China will be able to work amicably as the two nations tackle the difficult job of trade talks. The company delivered better than expected quarterly numbers in the latter part of April, which is also helping drive shares higher. GLW trades at $28.02, well below its $32.93 average price target.

Chart courtesy of www.stockcharts.com

Apple

iPhone maker Apple (AAPL) continues to enjoy its multi-year bull run, with the stock currently trading just shy of its all-time with a market cap approaching $925 billion. Concerns over easing iPhone demand were somewhat erased with the company’s strong quarterly report at the start of May, but a trade war with China could have a very negative impact on the company’s future. The reason being that Apple is so large, and has such large operations in China that it would be an easy target for the Chinese government should it decide to send a message to the U.S. However, it is very possible that Apple employees just too many Chinese citizens to make it a viable target of the Chinese government, and since it is based in California, a state that President Trump does not rely on anyway for its electoral votes, China may not see the advantage is making any aggressive moves against the company. All the same, Apple gets around a third of its sales in China, so any hint of potential trade war could damage the company’s stock. AAPL trades at $188.05 with an average price target of $195.17.

Chart courtesy of www.stockcharts.com

Symbols: AAPL GLW NVDA SWKS WYNN
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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