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4 Best Stocks to Gain on U.S.-China Trade Optimism

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China and the United States are currently in the final stages of negotiating a trade deal. Washington is looking forward to lift almost all U.S. tariffs on $200 billion worth of Chinese goods as long as China promises to protect intellectual property rights and buy significant number of American products. At the same time, Beijing is willing to offer lower tariffs and other sanctions on American products, including farm, chemical and auto.

Talks have now progressed significantly, which could help Chinese premier Xi Jinping and U.S. President Donald Trump reach a formal agreement when they meet around Mar 27. Trump had already mentioned that the economies were “getting very, very close” to a deal, while Zhang Yesui, a spokesman for the National People’s Congress, recently told reporters in Beijing that U.S. and Chinese officials “have conducted fruitful and intensive consultations and made important progress on many issues of common concern.”

An end to the U.S.-China trade tussle will be a major win for President Xi and his government, who is desperately trying to counter a slowdown in the Chinese economy. It’s also great news for the United States, as top American companies such as Apple Inc. (AAPL - Free Report) and Caterpillar Inc. (CAT - Free Report) have raised warnings that the trade war has been affecting revenues and eating into their profit margins.

Thus, the next obvious question: what are the best stocks to buy now given that a China-U.S. trade deal is near? Strangely, it’s the same companies that suffered the most when the trade war actually started off.

Walmart

The world’s largest retailer Walmart Inc. (WMT - Free Report) should be a clear winner when the trade issues finally cool off. After all, almost three-fourths of the merchandise sold in Walmart stores are manufactured in China.

And a 10% to 15% increase in the prices of goods it imports from China could easily dent Walmart’s bottom line.

Walmart currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current fiscal-year earnings has moved up 0.8% in the past 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Walmart flaunts a Growth Score of B and has outperformed the broader Retail - Supermarkets industry in the past three months (+3.3% vs +2.9%).

Ford Motor

Ford Motor Company (F - Free Report) is fighting an uphill battle, thanks to trade-related issues. Tariffs on materials imported from China as well as tariffs on vehicles exported to China are some of the headwinds confronting the company.

CEO James Hackett has warned that steel tariffs have impacted the company’s profits by $1 billion last year. Hence, a trade deal certainly bodes well for the manufacturer of range of cars, trucks, sport utility vehicles, and electrified vehicles.

Ford currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its next-quarter earnings has moved up 11.1% in the past 60 days.

The company’s expected earnings growth rate for the next quarter is a solid 11.1%. The company has outperformed the broader Automotive - Domestic industry so far this year (+15.2% vs +6.9%).

Deere & Company

One of the biggest problems Deere & Company (DE - Free Report) faces currently is diminished demand from the United States as the company struggles to sell products overseas market due to trade tensions.

For instance, the 25% tariff China imposed on the U.S.-grown soya beans has put an end to the crop’s sale in China. As a result, domestic farmers aren’t interested in buying agricultural equipment including tractors and pickers from the likes of Deere. Therefore, the company will largely benefit from a halt in the tariff war.

Deere currently has a Zacks Rank #3. The Zacks Consensus Estimate for its next-quarter earnings has moved 1.9% north in the past 60 days.

The company’s expected earnings growth rate for the current year is 19.6%, more than the Manufacturing - Farm Equipment industry’s projected gain of 11.2%. The company has outperformed the broader industry on a year-to-date basis (+11.2% vs +10.6%).

A. O. Smith

Rise of middle-class consumerism in China turned out to be a boom for water heater maker A. O. Smith Corporation (AOS - Free Report) . Better paying jobs meant growing demand for water heaters. In fact, it was the first hot water tank for some of the families.

But, fears of a prolonged trade war could hamper China’s economy, resulting in relatively flat demand for water heater this year. Thus, an amicable end to the trade spat could drive A. O. Smith’s shares.

The Zacks Rank #3 company’s expected earnings growth rate for the next quarter and current year are a steady 7.6% and 4.2%, respectively. The company has already outperformed the broader Manufacturing - Electronics industry so far this year (+23% vs +12.1%).

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