Over the weekend, at this year’s G20 conference, President Trump announced that no additional punitive tariffs would be placed on Chinese goods as the two nations work on an elusive trade deal.
The news of no new tariffs brought enthusiasm to the market, but there was no mention of easing any of the current tariffs that the two nations have put in place. Such news would really drive the market higher, but for now just the fact that no new tariffs are planned is enough to push stocks towards all-time highs.
The tech sector has been hit particularly hard during the trade war, and other sectors like farming and some consumer retailers have been hit.
It has become clear over the last year that a trade deal between the nations will be difficult to reach, and the unpredictability in the White House can always result in Washington back stepping and slapping new tariffs on China if negotiations once again stall.
The ultimate outcome of the current trade war, and the speed with which a deal is reached remains a very big unknown for the market, but both countries know a deal is in their best interest, and ultimately one will be reached. Until that time expect more market volatility. Here are some big winners from the ceasefire that should enjoy even more upside once a deal is reached.
Behind Alibaba (BABA), JD.com (JD) is China’s second largest e-commerce player, while also being the nation’s largest direct retailer. The stock took a big hit in the latter part of 2018 as trade tensions escalated. While the stock has rallied in 2019, shares remain 22% below their 52-week low set almost exactly a year ago. The company has faced other headwinds than just the trade war such as a rape allegation against its founder and CEO, but the company has started to rebound and a trade deal would help grow the company’s consumer base and drive profits higher. JD stock jumped over 5% on news of the ceasefire, and the stock should continue to trend higher as expectations for a trade deal increase. JD trades at $31.01 with an average price target of $35.00.
Apple (AAPL) is arguably the biggest winner from developments at the G20 summit. Apple has a lot of China exposure. Not only does the company manufacture a lot of its products in the nation, but it also relies heavily on Chinese consumers to buy its products. Another fear was that China would target Apple for retaliation for business restrictions that the U.S. has placed on China’s Hauwei. Part of the weekend’s ceasefire included Trump easing those restrictions which has lowered the possibility of retaliation against Apple. AAPL bounced on the G20 developments, and the stock will continue to rally unless trade negotiations begin to breakdown again. AAPL trades at an attractive 16 times future earnings which analysts expect the company to grow at an annual rate of 12% over the next five years. Analysts will likely adjust their future estimates higher once a deal is reached which will drive AAPL shares higher. AAPL trades at $201.84 with an average price target of $211.30.
Micron Technology (MU)
Semiconductor Micron Technology (MU) gapped higher on the trade war ceasefire as the semiconductor sector is particularly vulnerable to the ongoing trade war. The longer the trade war persists, the greater impact it will have on both economies which has the potential to slow corporate growth and negatively impact chip demand. After years of blistering stock appreciation, MU eased in 2018 as trade tensions arose, but analysts see a lot of value and upside in the stock after last year’s losses. MU is trading at $40.22 while analysts have an average price target of $44.17 on the stock. The semiconductor sector will remain volatile until an official deal is reached, but once the U.S. and China are able to put a deal in place all stocks in the sector will surge higher and quickly erase their losses from the last year.
Broadcom Inc. (AVGO)
Semiconductor maker Broadcom Inc. (AVGO) rallied on news of a trade ceasefire. Investors have been skittish on the stock after Broadcom was forced to cut its full year revenue guidance due to the Huawei ban. With the U.S. easing its ban on the Chinese company, chip suppliers such as Broadcom will feel less of a impact to sales and earnings than previously expected. With the revenue cut already priced into the stock, shares will continue to erase recent losses as restrictions are lifted Huawei. AVGO trades at just 12.6 times future earnings, which are forecast to rise 16.1% annually over the next five years. The current valuation and strong growth estimates should drive the stock higher. AVGO currently trades at $297.53 with an average price target of $303.30.