The U.S. stock market has gone through a lot of gyration, and with the new round of tariffs kicking in, investors brace for a long-drawn-out war between the United States and China. The tech-heavy Nasdaq Composite, in particular, has witnessed wild swings in recent times as tariffs have the potential to drive up costs of chip-makers and gadgets.
Tariffs of 15% on $112 billion of Chinese goods have been put into effect on Sep 1, as did retaliatory Chinese tariffs on U.S. commodities, including crude oil imports. In fact, the U.S.-China trade tussle intensified last month after President Trump urged U.S. firms to start looking for an “alternative to China.”
Now, nearly two-thirds of the consumer goods that the United States import from China will face higher taxes. Americans have to pay more for items like shoes, clothes and sporting goods. Trump’s higher tariffs will now impact consumer spending, which has been one of the driving factors for the economy. Needless to say, business houses have lowered spending and exports have slowed down in the face of weak global growth.
Both Washington and Beijing are struggling to de-escalate the trade war, with the United States accusing China of stealing trade secrets and unfairly subsidizing its own companies to make headway into high-tech fields such as AI and electric cars.
The United States and China were supposed to meet in September to negotiate tariffs, but investors now feel that any truce in the near term looks unlikely. What’s more, President Trump has said that he would be “tougher” on China in the second term if trade issues continue to linger. Also, the worsening trade situation between two of the world’s largest economies dented investors’ confidence in global economic growth.
Talking about growth, discouraging manufacturing report also stoked worries about an economic slowdown. The ISM manufacturing index slipped to 49.1% in August from 51.2% in July. Notably, any reading below 50% indicates a contraction in manufacturing activity. Also, let’s admit that businesses are more worried about expanding because of the uncertainty surrounding the U.S.-China trade disagreement.
Don’t Shun Equities, Consider These Stocks
Contrary to popular belief, there are stocks that do well despite a trade war. Prominent among them are Canada Goose Holdings Inc. GOOS, Akamai Technologies, Inc. AKAM, SolarEdge Technologies, Inc. SEDG and MAXIMUS, Inc. MMS.
In response to the Trump administration’s move to impose additional tariffs, China has devalued its currency. This, in turn, may negatively impact the overall Chinese consumption level. But, Canada Goose won’t be affected much due to this fall in consumption. After all, Canada Goose derives less than 10% of revenues directly from Chinese consumers compared with 30% to 40% for most luxury goods brands.
Canada Goose, currently, has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its next quarter earnings increased 2%. The company’s expected earnings growth for the current year is 21.2%, way more than the Retail – Apparel and Shoes industry’s projected rally of 1.8%.
Provider of cloud services for delivering, optimizing, and securing content and business applications, Akamai Technologies is another top pick, thanks to the company’s lack of China exposure. To top it, the company’s superb over-the-top delivery system, cloud security and online gaming are helping Akamai hold up better than most of its counterpart in a downturn.
Akamai Technologies, currently, has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings increased 2.7%. The company’s expected earnings growth for the current year is 17.7%, way more than the Internet – Services industry’s projected rally of 5.1%.
SolarEdge Technologies has shifted its production to Eastern Europe, and is not seeing any tariff disruption. The Zacks Rank #1 (Strong Buy) company’s expected earnings growth rate for the current and next quarter is 38.4% and 79.4%, respectively. In fact, the stock’s expected earnings growth rate for the current year is 23.7%, slightly higher than the Solar industry’s projected rally of 21.2%. The Zacks Consensus Estimate for its current-year earnings soared 21.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Provider of business outsourcing services across the globe, MAXIMUS actually gains during global growth slowdown. Its model focuses on social programs that are useful in terms of economic uncertainty. Needless to say, as the company has no exposure to China, tariffs have no impact on it.
MAXIMUS, currently, has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings increased 0.8%. The company’s expected earnings growth for the current quarter is 30.1%, higher than the Government Services industry’s projected rally of 14.5%.
In fact, shares of Canada Goose, Akamai Technologies, SolarEdge Technologies and MAXIMUS have gained 100%, 93%, 193.2% and 27.4%, respectively, over the past two-year period.
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