Concerns about the coronavirus outbreak and its subsequent impact on businesses certainly dented investors’ sentiment. But markets got a shot of confidence from signs of progress in the Sino-American trade relationship.
China recently announced that it will trim tariffs on $75 billion worth of U.S. imports by half starting next week. Per China’s Ministry of Finance, 10% tariffs on some of U.S. commodities would be cut to 5%, while those with 5% tariffs will be trimmed to 2.5% starting Feb 14. China’s ministry added that “in order to promote the healthy and stable development of Sino-U.S. economic and trade relations” such a move was taken. What’s more, the ministry suspended tariffs on some of the products required for treating victims of coronavirus.
In fact, on the trade front, the United States and China had signed a preliminary trade deal, indicating a truce in the protracted trade war. President Trump along with Chinese Vice Premier Liu He had called the deal “a landmark agreement.” The phase-one trade deal cuts U.S. tariffs to 7.5% on about $120 billion China products.
The United States said that China has agreed to increase import of commodities in 2020. China has also agreed to protect U.S. intellectual property rights and has given the assurance of not manipulating its currency. To top it, Trump had said that that the latest trade agreements helped the broader stock market gain. After all, the Trump administration’s phase-one trade deal with China did lessen the burden on global economic growth created by trade imbalances, and in turn boosted factory activities.
Lest we forget, the United States and China together account for 35% to 40% of the world’s economy, and thus have a significant influence on international growth. And since the negotiations have gone well between the countries, business confidence has improved, driving capital expenditure and in turn the stock market. Trade economist Mary Lovely of the Peterson Institute for International Economics summed up by saying that “the U.S.-China phase-one deal is essentially a trade truce, with large state-directed purchases attached. The truce is good news for the U.S. and the world economy.”
Thus, the next obvious question is which are the best stocks to buy now given that China-U.S. trade war worries are dissipating? The answer is the same companies that suffered the most when the trade war started.
Walmart
Walmart Inc. WMT engages in the retail and wholesale operations in various formats worldwide. The company operates through three segments: Walmart U.S., Walmart International and Sam’s Club. The world’s largest retailer should be a clear winner since trade issues have cooled off. After all, almost three-fourths of the merchandise sold in Walmart stores are manufactured in China. And any increase in the prices of goods it imports from China could easily dent Walmart’s bottom line.
Walmart is currently gaining from its sturdy comparable store sales (comps) record, which in turn is driven by its constant omnichannel efforts. The company has been posting positive comps in the U.S. division for 21 straight quarters.
The company currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has moved up 1.2% over the past 90 days. The company’s expected earnings growth rate for current and next quarter is 2.1% and 2.7%, respectively.
Intel
Intel Corporation INTC provides computing, networking, data storage, and communication solutions worldwide. The company in particular is expected to gain immensely. This is because Intel more or less generates bulk of its revenues from China, and it’s more than what the semiconductor company makes in the United States.
China, in fact, relies heavily on U.S. chipmakers, while semiconductors make up one of its largest import categories in terms of value. Hopes of abatement in U.S.-China trade tensions provided strength to the chip sector. Nonetheless, Intel’s leading position in PC market, strength in servers, growing clout in software, IoT & ADAS domains and headway in process technology are positive indicators of growth prospects.
The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 5.7% north over the past 60 days. The company’s expected earnings growth rate for current and next quarter is 47.2% and 18.9%, respectively.
Microsoft
Microsoft Corporation MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. Microsoft, in fact, has had a presence in China for the last two decades. Microsoft’s largest R&D center outside the United States is in China.
The enterprise refresh cycle, new subscription model, Azure and promising new products will continue to generate sizeable cash flows for Microsoft.
The company currently has a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its current-year earnings has risen 5.4% over the past 60 days. It’s expected earnings growth rate for the current quarter and year is 16.7% and 18.7%, respectively.
Apple
Apple Inc. AAPL designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The latest trade deal is certainly good news for Apple. After all, the prolonged trade war had slowed down demand for iPhones in China, hampering sales and compelling CEO Tim Cook to slash guidance.
Lest we forget, China is a significant market for iPhone. Apple had shipped 3.2 million iPhones in China last December, up from 2.7 million units shipped in December of 2018. Nevertheless, Apple is currently benefiting from momentum in the Services business, strong adoption of Apple Pay and growing Apple Music subscriber base.
The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 5.1% over the past 60 days. It’s expected earnings growth rate for the current quarter and year is 21.5% and 15.6%, respectively.
