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China May Reduce Consumer Goods Tariff: 5 Top Picks

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China is mulling over to reduce import duties on a wide range of consumer products, effective as early as Jul 1. Although the exact composition of the cuts has not been finalized yet and is still subject to approval by the State Council, the cuts are expected to be applied on around 200 items including food, medicine, health products and cosmetics.

The move came on the heels of Beijing’s goal of boosting consumption in the world’s second-biggest economy that could revive the slowdown. Additionally, the move is a step forward to defuse tensions with the Trump administration over the trade imbalance and in is line with China’s pledge to buy more U.S. goods to substantially reduce America's massive trade deficit.

In fact, this would mark the second import duty reduction in U.S.-China trade talks to avert a war. China this week also slashed import tariffs for automobiles and car parts effective Jul 1. The import duties have been reduced from 25% to 15% for vehicles and from 10% to 6% for auto parts including bumpers, doors and seat belts.

The tariff reduction on consumer goods would open up doors for companies to expand and deepen their presence in China. It would also allow foreign companies to earn more profits by selling more consumer goods in the world's second biggest economy with lower taxes.

This is the second time in six months that China has lowered import tariffs on consumer goods. In December, Beijing cut duties on almost 200 consumer products including food, health supplements, pharmaceuticals, garments, and recreational goods to 7.7% on average from 17.3%. Among the categories that saw exceptional cuts were milk powder and diapers, whose taxes have been slashed to zero percent from 20% and 7.5%, respectively. Import duties on certain cosmetics were halved to 5% at that time.

Given the potential of additional tax cuts on consumer goods, the consumer staples sector seems a promising bet. As such, we have highlighted five stocks from the in-focus industries in the sector that poses strong fundamentals with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and double-digit estimated growth for this year.

Inter Parfums Inc. (IPAR - Free Report)

This is a Zacks Rank #1 premier fragrance company with a diverse portfolio of prestige brands. It has been selected as the fragrance and beauty partner for a growing list of brands that include Abercrombie & Fitch, Agent Provocateur, Anna Sui, bebe, Boucheron, Coach, Dunhill, Hollister, Jimmy Choo, Karl Lagerfeld, Lanvin, Montblanc, Oscar de la Renta, Paul Smith, Repetto, Rochas, Shanghai Tang, S.T. Dupont and Van Cleef & Arpels. The stock saw solid earnings estimate revision of 15 cents for this year over the past three months, with expected earnings growth of 20.30%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast Inc. (MED - Free Report)

This Zacks Rank #1 company is a leading manufacturer and distributor of clinically proven healthy living products and programs. It is a brand recommended by more than 20,000 doctors. The company’s earnings estimates has moved up from $2.60 to $3.65 over the past three months for this year, indicating year-over-year growth of 59.39%.  

Conagra Brands Inc. (CAG - Free Report)

This Zacks Rank #2 company manufactures and markets packaged foods for retail consumers, restaurants and institutions. The company offers meals, entrees, condiments, sides, snacks, specialty potatoes, milled grain ingredients, dehydrated vegetables and seasonings, and blends and flavors. It saw solid earnings estimate revision of 12 cents for this fiscal year (ending May 2019) over the past three months, with expected earnings growth of 12.67%.

United Natural Foods Inc. (UNFI - Free Report)

This Zacks Rank #2 company is the largest publicly traded wholesale distributor to the natural, organic and specialty industry in the United States and Canada. United Natural Foods serves a wide variety of sales channels including conventional supermarket chains, natural product superstores, independent retailers, eCommerce and food service. Its earnings estimate has moved up from $2.82 to $3.10 over the past three months for this fiscal year (ending August 2018), indicating year-over-year growth of 20.62%.  

Lamb Weston Holdings Inc. (LW - Free Report)

This Zacks Rank #2 is a supplier of frozen potato, sweet potato, appetizer and vegetable products to restaurants and retailers. The stock has seen solid earnings estimate revision of 13 cents for this fiscal year (ending May 2019) over the past three months and has estimated earnings growth of 16.54%.

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