Will the U.S. economy be able to safeguard its position as the largest in the world? Maybe not, as a few studies show that China might overtake the United States before 2030. While one cannot be definite about the time frame, China is already at war with the leading economy in the energy space.
Reportedly, China and Russia are no longer willing to engage in oil trading denominated in the petrodollar. Instead, China intends to trade crude in the yuan and wants to open up a platform for trading oil futures in the currency.
Now, the question that looms large is whether major crude exporters will choose to accept payments in the yuan, no doubt irking the United States in the process.
China's Stance Against the Petrodollar
China has displaced the United States as the largest oil importer in the world, according to Carl Weinberg, chief economist at High Frequency Economics. Beijing is now in a position to control global demand for oil, which is arguably the largest traded commodity on the planet.
Weinberg added that Beijing will force major oil exporters to accept the yuan in place of the dollar for oil trading. Per data provided by global research and consultancy group Wood Mackenzie, China imports 26.5% of crude from Saudi Arabia – the largest exporter of the commodity.
Thus, it is almost impossible for the Saudis to turn down China’s offer of accepting payments in the yuan. Weinberg believes that if Saudi Arabia agrees on the same, exporters will also dump the dollar as the reserve currency of the world.
Reportedly, China is planning to unveil an Asian crude yardstick by creating a yuan-denominated oil futures contract that will be backed by gold. This might compel leading crude producers to accept payments in the yuan.
Dollar Decline Could Boost U.S. Jobs
More yuan transactions may end up lowering the demand for the dollar, eventually leading to the dollar's lower overall value. Ultimately, imports will be pricier for the United States, but exports will be cheaper.
With a weaker dollar, activity in manufacturing and production plants in the United States will increase as the cost of production abroad will be relatively expensive. Also, there will be more jobs in the U.S. markets which will directly boost the economy.
Major multinational U.S. firms with extensive global presence stand to gain from the conversion of other currencies into the weaker dollar as well.
Manufacturing Stocks to Benefit
Growth in manufacturing sector employment will indirectly support President Trump’s electoral promises. During his campaign, the president had promised to create jobs in the manufacturing industry.
Thus, picking manufacturing stocks seems to be a smart option now, but choosing the right stocks is quite a daunting task.
This is where our VGM Score comes in handy. Here, V stands for Value, G for Growth, and M for Momentum, and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at the overall composite score.
We have narrowed down our search to the following stocks based on a solid Zacks Rank and VGM Score.
Headquartered in Scottsdale, AZ, TPI Composites, Inc. (TPIC - Free Report) is among the leading manufacturers of composite wind blades in the domestic market.
The company surpassed the Zacks Consensus Estimate in the past four quarters, with an average positive earnings surprise of 351.67%. Also, the firm – having a VGM Score of A – will likely see earnings growth of 46.7% in 2017.
TPI Composites sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Peoria, IL, Caterpillar (CAT - Free Report) is the world’s leading manufacturer of construction and mining equipment, diesel, and natural gas engines and industrial gas turbines.
With a VGM Score of B, the company is likely to witness year-over-year earnings growth of 53.8% in 2017. Also, Caterpillar has surpassed the Zacks Consensus Estimate in the last four quarters with an average positive surprise of 41.4%.
Presently, the company carries a Zacks Rank #2 (Buy).
Brady Corporation (BRC - Free Report) , headquartered in Milwaukee, WI, is the leading manufacturer of products used for improving safety of customers.
The Zacks #2 Ranked company beat the Zacks Consensus Estimate in three of the last four quarters, at an average of 6.08%. Brady, with a VGM Score of B, is expected to post year-over-year earnings growth of almost 9.6% in fiscal 2018.
Headquartered in Lake Forest, IL, Packaging Corporation of America (PKG - Free Report) is one of the largest manufacturers of corrugated packaging products.
The company with a Zacks Rank of 2 managed to beat the Zacks Consensus Estimate in three of the past four quarters with an average positive earnings surprise of 2.60%. We expect the company, with a VGM Score of B, to witness year-over-year earnings growth of 24.7%.
Alcoa Corporation (AA - Free Report) , based in New York, is a leading manufacturer of alumina, bauxite and aluminum products.
This Zacks #1 Ranked company, with VGM Score of A, is likely to post year-over-year earnings growth of almost 362% for 2017. Also, over the last 60 days, the Zacks Consensus Estimate for 2017 earnings has been revised upward.
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