While a steady U.S. economy and President Trump’s reformative announcements are acting as tailwinds for the markets, heightened tensions related to trade war remain a major concern.
Fears of a trade war between the United States and its trading partners have been around since March. It all started with Trump’s announcement of imposing 25% tariff on steel imports and 10% on aluminum imports on America’s biggest allies — European Union, Canada and Mexico.
America’s trading partners retaliated by targeting its products worth billions of dollars. The European Union intends to hit back with higher tariffs on roughly $7.5 billion worth of U.S. exports and file a legal notice against American measures at the World Trade Organization. Canada’s retaliatory tariffs on $12.8 billion worth of U.S. exports will be effective from Jul 1. Mexico is also set to impose a 20% tariff on U.S. pork and ham imports in response to Trump’s steel and aluminum import levies, per Reuters.
Relations between China and United States have been tensed for a while, with the latter announcing a hefty 25% tariff on $50 billion worth of Chinese goods. The final list of Chinese goods subject to new import taxes is expected to be announced tomorrow. Trump also plans to restrict Chinese investment in U.S. companies and limit the number of goods that these companies can sell to China. China retaliated by announcing tariffs on U.S. goods (including soybeans, aircraft and vehicles) worth $50 billion.
Adding fuel to the ongoing trade tensions, the Trump administration initiated a national security investigation into whether automobile imports are harming U.S. national security. The investigation, under Section 232, is the same tactic used by the Trump administration before it imposed global tariffs on steel and aluminum import earlier this year. The public hearings for the aforesaid investigation into auto imports is expected to be held around Jul 19-20.
Given these developments, tensions over trade policy are most likely to escalate again in the coming months. All these events are hinting toward a global trade war.
What’s Going in Favor of the Business Services Sector?
As tensions over trade policy intensify, the business services sector stands to gain from the growing U.S. economy. This is because it is firmly tied to manufacturing and non-manufacturing activities that are currently benefiting from the all-round strength in the economy. The sector has recorded the highest jobs, with an addition of 483,000 jobs in the past 12 months.In May, the sector added 31,000 jobs, the second highest among all sectors.
Economic activity in the manufacturing sector expanded in May as PMI measured by Institute of Supply Management (ISM) touched 58.7%. This shows strong growth in manufacturing for the 21st consecutive month, driven by continued increase in new orders, production activity and employment. Of the 18 manufacturing industries, 16 reported growth in May.
As far as the non-manufacturing sector is concerned, NMI was 58.6% in May, recording the 100th consecutive month of expansion. This expansion was driven by continued increase in business activity, new orders, employment, inventories, prices and supplier deliveries. Out of the 18 non-manufacturing industries, 14 reported growth.
Although U.S. economic growth decelerated in the first quarter to an annualized pace of 2.2%, after averaging higher than 3% in the previous three quarters, the economy is likely to rebound in the coming quarters. Income tax cuts along with increased government spending are expected to push annual economic growth to the 3% target.
Additionally, the current 18-year low unemployment rate of 3.8% recorded in the month of May further raises optimism about the economy.
6 Stocks to Secure Your Portfolio Amid Trade War Tensions
Given the promising developments in the business service sector, adding stocks from the sector looks like a smart move to safeguard your portfolio amid trade war fears.
The buoyancy in the sector is further confirmed by its Zacks Sector Rank in the top 44% (7 out of 16 sectors). Additionally, we observe that the sector has performed well in the past year compared with the benchmark. It has gained 22.5%, significantly outperforming the S&P 500’s rally of 13.7% in the said time frame.
With the help of the Zacks Stock Screener, we have zeroed in on six promising stocks from the sector. These stocks have a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy), a VGM Score of A or B and solid expected earnings growth rate for the current quarter and year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 offer the best investment opportunities for investors. Thus, the selected companies appear to be compelling investment propositions at the moment.
Based in New Jersey, Avis Budget Group, Inc. (CAR - Free Report) is a leading provider of vehicle rental services. Currently, it sports a Zacks Rank #1 and has a VGM Score of A. The company’s expected earnings growth rate for the current year is 26.3%. The Zacks Consensus Estimate for the current year improved 9.4% in the last 60 days.
Based in Connecticut, Xerox Corporation (XRX - Free Report) is one the leading enterprise for business process and document management on a worldwide basis. It carries a Zacks Rank #2 and has a VGM Score of A. The company’s expected earnings growth rate for the current year is 0.3%. The Zacks Consensus Estimate for the current year improved 1.7% in the last 60 days.
Based in California, Robert Half International Inc. (RHI - Free Report) is one of the largest human resource consulting firms in the United States. It has a Zacks Rank #2 and a VGM Score of B. The company’s expected earnings growth rate for the current year is 29.6%. The Zacks Consensus Estimate for the current year improved 4.3% in the last 60 days.
Based in Florida, Kforce, Inc. (KFRC - Free Report) is a professional staffing services firm. It carries a Zacks Rank #2 and has a VGM Score of B. The company’s expected earnings growth rate for the current year is 40.1%. The Zacks Consensus Estimate for the current year improved 3.3% in the last 60 days.
Based in New York, Broadridge Financial Solutions Inc. (BR - Free Report) provides technology-based outsourcing solutions to the financial services industry. It has a Zacks Rank #2 and a VGM Score of B. The company’s expected earnings growth rate for the current year is 34.5%. The Zacks Consensus Estimate for the current year improved 4.2% in the last 60 days.
Based in New Jersey, The Dun & Bradstreet Corporation (DNB - Free Report) is a leading provider of commercial information that serves a diverse set of customer needs globally. It has a Zacks Rank #2 and a VGM Score of B. The company’s expected earnings growth rate for the current year is 15.1%. The Zacks Consensus Estimate for the current year improved 4.3% in the last 60 days.
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