The trade war between the U.S. and China has dominated the headlines in 2019, and with each tweet expressing optimism and each tweet declaring frustration with negotiations the market has reacted with high volatility.
President Trump is determined to level what he believes to be an unfair playing field, while China appears willing to fight back with its own tariffs and currency manipulation to keep pressure on the U.S. to reach a deal as quickly as possible.
There are a lot of things at work with the trade deal, not the least of which is China realizing Trump has a presidential election around the corner, and knowing that it is definitely not in his best interest to let a prolonged trade war lead the nation closer to another recession.
Regardless of how long the trade war lasts, a deal will eventually be reached. How much pain is endured before that happens, and what the outcome of a deal looks like is anyone's guess at this time, but you can have confidence in the fact that the stocks that have been held back the most during the trade war will all start to recover… the real question is when.
Let's look at a few stocks that have been under pressure that are likely to move higher as the U.S. and China move closer to an eventual deal.
Apple (AAPL)
China is huge for Apple (AAPL). Not only does Apple do a lot of manufacturing in the nation, it also relies heavily on Chinese consumers to keep buying its devices. iPhone sales are already slowing, and Apple cannot stand to see a huge hit to its Chinese business. This is why AAPL stock struggled in the latter part of 2018, and why shares have traded sideways for the majority of the year despite a string of big positive earnings surprises as the company's services division continues to grow at a rapid pace. AAPL stock remains a very good value, with shares trading at just 16 times earnings which are expected to rise at an annual rate of 9.7% over the next five years and given Apple's impressive earnings track record the forecast earnings estimate could be grossly understated. Analysts see upside potential in the stock which is currently trading at $205.82 with an average price target of $221.54.
Get More Analysis and Trade Ideas on Apple (AAPL) Stock
Caterpillar (CAT)
Heavy machinery maker Caterpillar (CAT) has widely underperformed the market over the last year and the stock is currently trading just above its 52-week low. The trade war China has fought so far was attacking U.S. farmers. China rightly understands this is the quickest way to hurt Trump's base, and the U.S. has already had to step in with subsidies for U.S. farmers hurt by China's purchasing its agricultural goods from other countries. Caterpillar also relies on construction and if the trade war leads to a global recession demand for the company's heavy machinery will shrink. The stock has fallen into oversold territory, with shares currently trading at $114.66 which is just 10 times earnings. Obviously future earnings growth could be hit by a prolonged trade war, but at this time analysts still expect to see the company grow profits at an annual rate of 5% over the next five years. A quick and favorable trade deal could see those estimates lift and traders rush in to pick up shares of the beaten-up stock at its current valuation. Analysts have a very bullish $145.17 average price target on the stock.
Get More Analysis and Trade Ideas on Caterpillar (CAT) Stock
3M Company (MMM)
Trade war concerns have devastated 3M Company (MMM) stock in 2019. MMM is currently down 29% from its 52-week high set in April before it became obvious a trade deal was not going to happen in the near-term as some analysts had begun to expect at the time. Besides the U.S., China is MMM's biggest market. The company has already been forced to cut its full year guidance due to weakness in China and has announced layoffs in the nation. MMM had enjoyed a strong 2-year run ahead of the trade war and will likely start to recover after a deal is reached. The stock trades at just 18 times earnings, and analysts expect the company to grow its profits 3.4% annually over the next five years. MMM is trading at $155.73 with an average price target of $179.00.
Get More Analysis and Trade Ideas on 3M Company (MMM) Stock
Intel (INTC)
Technology is another sector that is particularly vulnerable to the ongoing trade war with China. Technology spending shrinks quickly during a recession as both corporations and individuals scale back acquiring new technology until the economic outlook is more favorable. Semiconductor are especially vulnerable, and the entire sector has struggled. Intel (INTC) rallied in the first part of 2019 as expectations of a trade deal were rising, only to move sharply lower in May as those hopes faded. The stock is currently trading lower as trade tensions have sparked up again, and the recent drop as really created some value in the stock. INTC trades at just 10.6 times earnings. Analysts forecast profits will rise 7.3% per annum over the next five years, and Intel has a long 17-quarter streak of topping estimates so actual growth could be much greater. INTC trades at $45.86 with a $53.86 average price target.
