A slew of headlines raised doubts about whether the U.S.-China trade talks set to begin Thursday will be fruitful. Both Washington and Beijing were supposed to resume talks with import tariffs set at $250 billion worth of Chinese commodities at a rate of 30%.
But, chances of successful trade talks diminished after the Trump administration blacklisted 28 Chinese companies, including AI firms, over human rights concerns.
U.S. Secretary of State, Mike Pompeo said that “China has forcibly detained over one million Muslims in a brutal, systematic campaign to erase religion and culture in Xinjiang.” He added that “China must end its draconian surveillance and repression, release all those arbitrarily detained, and cease its coercion of Chinese Muslims abroad.”
Such a move by the U.S. government might thwart the progress made in the 15-month-long trade issue, impacting the global economy.
Both Trump and his top economic adviser, Larry Kudlow, had some positive discussions with Chinese officials, but Trump insisted that he wouldn’t be satisfied with any partial deal. Trump said that “I would much prefer a big deal and I think that's what we're shooting for.” What’s more, the Trump administration may come out with possible restrictions on capital flows into China. And most of the focus will be on investments made by U.S. government pension funds.
Thanks to such developments, China has now lowered expectations for a breakthrough this week. The South China Morning Post reported that Chinese Vice Premier Liu He won’t be accompanying his government as a “special envoy” during this week and that the Chinese delegation will cut their stay short.
With the United States-China at loggerheads over trade issues, the stock market continues to gyrate. But not all stocks are facing the brunt. Let us, thus, take a look at the potential winners from the trade war —
Potential Winners as Trade Issue Lingers
As uncertainty over the outcome of the Sino-American trade deal rises, investors should target stocks that stand to gain from an all-out trade war.
Service firms are safe bets because such firms are unperturbed by trade tensions as they have less foreign sales exposure compared to goods companies. Service stocks also have less foreign input costs that might be subject to tariffs. Such input costs mostly include direct materials, labor and factory overheads.
Prominent among them are CoreLogic, Inc. CLGX and Booz Allen Hamilton Holding Corporation BAH. Both the stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CoreLogic provides property information, insight, analytics, and data-enabled solutions. The Zacks Consensus Estimate for its current-year earnings has risen 0.8% over the past 60 days. The company’s expected earnings growth rate for the current and next quarter is a solid 12.5% and 22.9%, respectively.
Booz Allen Hamilton provides management and technology consulting, engineering, analytics, digital, mission operations, and cyber solutions to governments, corporations, and not-for-profit organizations. The Zacks Consensus Estimate for its current-year earnings has moved up 0.7% over the past 60 days. The company’s expected earnings growth rate for the current year is a superb 11.2%.
By the way, provider of cloud services for delivering, optimizing, and securing content and business applications, Akamai Technologies, Inc. AKAM 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 counterparts in periods of economic downturn.
Akamai currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has climbed 0.2% over the past 60 days. The company’s expected earnings growth for the current year is nearly 18%.
It’s just not service firms but also utilities and real estate sectors that are relatively immune to trade-related issues. After all, stocks from these sectors are generally non-cyclical, or companies whose business performance and sales are not highly correlated with activities in the larger market. Their products are in constant demand, irrespective of market conditions. Moreover, such stocks are deemed defensive as electricity, gas and water, and housing are essentials.
Prominent among utility players is Global Water Resources, Inc. GWRS. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 20% north over the past 90 days. The stock’s expected earnings growth rate for the current quarter is a whopping 100%.
Among real estate players, KB Home KBH is a prominent name. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has risen 5.2% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is an encouraging 34.4% and 64.9%, respectively.
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