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US-EU Talks: A Boon for Agriculture and Energy Stocks

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President Donald Trump and EU President Jean-Claude Juncker’s talks on Jul 25 lowered risks of a transatlantic trade war that could impact $1 trillion U.S.-E.U. trade, bringing relief to investors, businesses and consumers alike. Trump agreed to refrain from imposing auto tariffs on the European Union while negotiations on other vital trade barriers that benefit both economies continue.

Europe has agreed to increase its purchase of liquefied natural gas (“LNG”) and reduce trade barriers on American soybeans, Trump said. This is an enormous relief for American farmers, who have been bearing EU’s retaliatory tariff of 25% on their goods since Jun 22. The American energy sector looks forward to a boost as well, as a rise in LNG sales could be in the cards.

Tariff Revisions in the Pipeline

The two countries will now work toward resolving Trump’s steel and aluminum tariffs, EU’s retaliatory tariffs on American goods and work out a zero tariff trade agreement for non-automotive industrial goods. Calling the meeting “good” and “constructive,” Juncker said that further tariffs, including Trump’s possible tariffs on European cars and auto parts, would be held off until both parties negotiate trade.

Since Jun 1, EU has been subject to 25% tariffs on steel and 10% on aluminum worth 6.4 billion euros a year. In retaliation, the European Union levied a 25% tariff on American goods worth 2.8 billion euros, ranging from orange juice to motor bikes. Both the United States and EU will now re-evaluate these tariffs and work toward lowering them.

“Great to be back on track with the European Union. This was a big day for free and fair trade!” Trump tweeted on Wednesday as the meeting was concluded on a friendly note between the two parties. The tweet was a stark contrast to Trump’s statement on Jul 15 when he called the EU a “foe” in trade.

Zero Tariffs on Non-Auto Industrial Goods

While addressing a press conference on Jul 25, Trump said that he and Juncker agreed to work together to reduce barriers and improve trade relationship. As part of this attempt, barriers in transatlantic trade of services, medical products, pharmaceuticals, chemicals and soybeans should reduce.

Neither Trump nor Juncker specified anything about auto tariffs in their statements, but focused on non-auto industrial goods.

Overall, the Trump-Juncker meet signals many positive measures that could come into action in the coming weeks, making significant difference to the already imposed tariffs on aluminum and steel, EU’s retaliatory tariffs and no tariffs on non-auto industrial goods.

Good News for U.S. Energy and Agriculture Sectors

U.S. farmers are expected to be severely affected by the Jul 6 retaliatory tariffs on $34 billion worth of American goods, including soybeans, imposed by China. Although EU’s retaliatory tariffs didn’t include soybeans, China’s actions are enough to cause damage to America’s soybean farmers.

It was a strong blow to American farmers as soybeans were the United State’s prime export to China in 2017. Trump had announced a $12 billion aid on Jul 24 to partly compensate for the losses. Now, EU’s promise to buy more of American soybeans could significantly help in compensating for the loss.

According to the U.S. Department of Agriculture, in 2017, EU was the fifth largest market in the world for American agricultural exports ($11.5 billion) while China was the second-largest market, accommodating $19.6 billion worth of U.S. agricultural exports.

On the other hand, according to Juncker, EU already imports 35% of the country’s LNG from U.S. producers and it could buy more if the trade conditions are right and prices are competitive.

4 Stocks to Buy Now

The constructive outcome of the Trump-Juncker meet has raised hopes of good returns in the agriculture and energy sectors. As both countries follow their agendas, U.S. agriculture and energy sectors are expected to thrive, making agriculture and energy stocks great investment options.

Below are four energy and agriculture stocks that might help you get decent returns. Each of these stocks hold a Zacks Rank #1 (Strong Buy) or 2 (Buy).

ConocoPhillips (COP - Free Report) is a major global exploration and production company. Shares of this Zacks Rank #1 company have gained 30.8% year to date. ConocoPhillips has witnessed an upward earnings estimate revision of 3.8% for the current year over the last 30 days.

BHP Billiton Limited (BHP - Free Report) is a leading company in the global natural resources industry. Its shares have gained 8.9 % year to date. BHP Billiton holds a Zacks Rank #1 and has witnessed an upward earnings estimate revision of 5.3% for the current year over the past month.

Headquartered in Decatur, IL, Archer Daniels Midland Company (ADM - Free Report) produces, processes, stores and sells agricultural products. Archer Daniels’ runs the world’s largest soy isoflavone centers. Archer Daniels’ shares have gained 19.1% year to date. The company holds a Zacks Rank #2 and has witnessed an upward earnings estimate revision of 1.2% for the current year over the same time frame.

Calyxt, Inc. is an agriculture- and food-centric company with a Zacks Rank #2. The company’s earnings estimate revision hasn’t changed for the current year over the last 30 days.

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