President Donald Trump is likely to impose tariffs on China by this weekend. Information technology, telecommunications and consumer electronics are the major Chinese industries that are expected to bear the brunt of U.S. tariffs.
Notably, the implementation of these tariffs stems from the Trump administration’s concern that manufacturing by Chinese companies for these sectors is leaving the intellectual property of the American companies vulnerable to theft.
Consequently, U.S. companies that rely on Chinese imports are unhappy about the move as it will raise prices of telecom equipment and several electronics products for the IT sector. However, a hike in product prices will certainly help U.S. wireless equipment manufacturers.
Further, this move highlights the Trump administration’s aggressive efforts to safeguard next-generation innovative products of these blue-collar industries of the country. That is why investment in some of these stocks with a favorable Zacks Rank should prove to be lucrative.
National Security Concerns Dominate Telecom Space
Trump administration is deeply concerned about China’s drive to unseat United States as the primary developer and supplier of state-of-the-art products in the fields of high-tech artificial intelligence, semiconductors, quantum computing and various other digital technology driven sectors.
Notably, most of the big manufacturers of these products are fully patronized by the Chinese government. These companies have become serious threat to the U.S. economic and military supremacy. China runs a massive $375 billion trade surplus against United States.
On Mar 12, Trump ordered to immediately prohibit the proposed $117 billion takeover bid of Singapore-based Broadcom (AVGO - Free Report) for Qualcomm (QCOM - Free Report) , U.S. chipset giant and a global leader for setting wireless standards.
The government argued that third party entities, especially, the Chinese tech giants like Huawei and ZTE may get access to Qualcomm’s precious patents from Broadcom or at least a stalled R&D activity may result in Qualcomm losing its competitive edge in the upcoming 5G wireless network standard to its Chinese counterparts. (Read More: Is the Broadcom-Qualcomm Deal in Jeopardy? Winners & Losers)
In recent months, the U.S. Treasury's Committee on Foreign Investment in the United States (CFIUS) has blocked takeover deals of U.S. companies MoneyGram International Inc. (MGI - Free Report) and Lattice Semiconductor Corp. (LSCC - Free Report) by Chinese counterparts. In fact, in January 2018, the security officials of Trump administration contemplated the prospect of the government building its own 5G network to combat China’s economic and cyber threat.
Strong Domestic Wireless Infrastructure Market
A growing U.S. economy speeds up the demand for real-time voice, data, and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions while upgrading plans. This in turn has provided a boost to the demand for telecom infrastructure developers, particularly wireless gear manufacturers.
On Dec 21, SNS Research reported that the wireless network infrastructure industry is expected to grow at a rate of 2% over the next three years. Per projections, the market will witness an annual spending of $56 billion by 2020, up from $53 billion in 2017. Per the report, the next-generation 5G wireless network is anticipated to account for more than 40% of wireless infrastructure spending by the end of 2025.
Trump has given enough indication that his administration will take special interest in the functioning of the telecom industry. The safeguarding of the highly valuable patents of the American tech heavy companies from the Chinese dragon is of foremost importance to the American eagle.
At this stage, investors will be better off to investing in U.S. wireless equipment manufacturing companies, which are expected to benefit the most from upcoming U.S. tariffs on China. At this stage, we have narrowed down our search to the following stocks with favourable Zacks Rank #1 (Strong Buy) or 2 (Buy) with strong growth potential.
Chart below shows the performance our five picks in the last three months.
NETGEAR Inc. (NTGR - Free Report) is a global networking company that delivers innovative products to consumers, businesses and service providers.
The stock flaunts a Zacks Rank #1. The company has expected earnings growth of 19% for current year. The Zacks Consensus Estimate for the current year has improved by 1.2% over the last 60 days.
Comtech Telecommunications Corp. (CMTL - Free Report) designs, develops, produces and markets innovative products, systems and services for advanced communications solutions.
The company has expected earnings growth of 232.4% for current year. The Zacks Consensus Estimate for the current year has improved by 61.1% over the last 60 days. The stock flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cisco Systems Inc. (CSCO - Free Report) is an IP-based networking company, also offering other products and services to service providers, companies, commercial users and individuals.
The stock carries a Zacks Rank #2. The company has expected earnings growth of 7.1% for current year. The Zacks Consensus Estimate for the current year has improved by 4.1% over the last 60 days.
Motorola Solutions Inc. (MSI - Free Report) is engaged in providing communication equipment, software and services. It focuses on providing public safety communications.
The stock carries a Zacks Rank #2. The company has expected earnings growth of 20.3% for current year. The Zacks Consensus Estimate for the current year has improved by 13.1% over the last 60 days.
Harris Corp. (HRS - Free Report) is a leading technology innovator, solving customers' toughest mission-critical challenges by providing solutions that connect, inform and protect.
The stock carries a Zacks Rank #2. The company has expected earnings growth of 17.2% for current year. The Zacks Consensus Estimate for the current year has improved by 6.6% over the last 60 days.
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