After a strong first half of the year, the stock market has run into troubles in recent months. Most of the tension on Wall Street has been the ongoing trade war between the U.S. and China, and that continues to remain.
Interest rates have been on the minds of investors as the Federal Reserve cut the federal funds rate for the first time since the great recession, but it has been primarily the trade war that has driven the market.
Markets were strong after the U.S. and China agreed to a trade war "ceasefire", but they fell apart when President Trump announced new tariffs on Chinese goods, and China allowed its currency to devalue to levels not seen in a decade in retaliation.
The market could continue to fall. The longer the trade war persists the greater impact it will have on global economic growth, so any signs of trade negotiations not working will spook investors and continue the drive the broader indexes lower.
There are some companies that are less vulnerable to China, and those are the companies we are looking at to buy in today's volatile market.
Alphabet (GOOGL)
Alphabet (GOOGL), the parent company of search engine giant Google does not do business in China. If the trade war leads to a global recession, then all companies would be hit, but barring that outcome Alphabet should do OK. The company continues to grow as Google clearly dominates the search market. Earnings are up 16% per annum over the last five year and analyst see additional earnings growth of 9% annually over the next five years. Google's dominant position in the search market is threatened only by Facebook (FB) and Google remains the clear leader in the highly lucrative market. The company posted solid top and bottom line beats late in July which shot the stock higher before trailing off in sympathy to the overall market over the last week. The stock is an attractive long-term buy at $1,167.09 with an average price target of $1,362.34.
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Amazon.com (AMZN)
Amazon.com (AMZN) is another tech stock that I would consider in today's market. The trade war, and the tariffs that come with it, are going to result in higher prices for U.S. consumers. Companies will try to absorb some of the costs, but ultimately the U.S. consumer will start to see prices rise at local stores. As prices rise, Amazon becomes more attractive. Amazon is still considered to be the cheaper place to goods versus brick-and-mortar retailers. Customers are very sensitive to the smallest of price increases and will quickly look for a cheaper alternative. In most cases, that is Amazon. The company has grown earnings at an annual rate of 108% over the last five years. Just as impressive, analysts expect profits to rise at an annual rate of 83% over the next five years. Amazon is the king of e-commerce, and a leader in cloud-computing as well. The company is in a position to be a leader of the tech sector for years to come. The stock is currently trading at $1,777.98 with an average price target of $2,257.83.
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Costco (COST)
Costco (COST) is a membership retailer that sells in bulk. Shoppers that are looking to buy in bulk in order to lower their costs will turn to Costco if smaller retailers are forced to raise prices in reaction to the new trade tariff imposed on China. Costco has shown strength in the first half of 2019 as the company has delivered better than expected earnings each of the last three quarters. Costco continues to grow at a solid pace with earnings expected to rise 9.5% per annum over the next five years. The stock has a slightly higher valuation with a P/E of 32, but Wall Street is bullish on the stock and are willing to buy into the stock at that price. The last two weeks the stock has fallen from its all-time high which has lowered the valuation for investors that missed the stock before it reached its record high. COST trades at $266.93 with an average price target of $265.70. The company reports its next set of quarterly numbers on August 29 and a strong result would quickly push shares back toward their all-time high of $284.31.
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General Dynamics (GD)
General Dynamics (GD) is an aerospace and defense contractor, with 85% of its sales coming from the U.S. government. Government spending on military is set to grow for the fifth straight year, and there are enough geo-political uncertainties in the world right now to assume the U.S. will start cutting back military spending in the near future. General Dynamics has seen earnings rise 7% over the last five years as military spending has picked up, and analysts expect the company to continue growing profits at an annual rate of 8.7% for the next five years. General Dynamics delivered a top and bottom line Q2 beat on July 24. The stock currently trades at $178.21 with an average price target of $203.83.
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