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4 Potential Winners as US-China Trade Conflicts Escalate

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The ongoing trade conflict between United States and China is showing no signs of abating. The issue has escalated to a point where imposition of tariffs and retaliatory tariffs may go up to $450 billion on either side. Further, President Trump’s intention of restricting Chinese companies from investing in U.S. tech firms to prevent technology export to China is likely to add fuel to the fire.

President Trump’s decision to impose tariffs does not sit well with U.S. companies that rely on Chinese imports. However, Trump’s stance on tariffs is likely to raise product prices aiding the U.S. telecom equipment manufacturing industry. Consequently, investment in some of these stocks with a favorable Zacks Rank should prove to be lucrative.

National Security Concerns Dominate Tariff Decisions

Trump administration is deeply concerned about China’s drive to unseat the United States as the primary developer and supplier of 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 patronized by the Chinese government. These companies have become a serious threat to U.S. economic and military supremacy. Information technology, telecommunications and consumer electronics are the major Chinese industries which have come under first phase of U.S. tariffs worth $50 billion.   

On Jun 24, The Wall Street Journal reported that the Trump administration is planning to impose more restrictions on Chinese companies. Per the report, any company with 25% or more Chinese ownership will be barred from investing in any U.S. tech companies. Likewise, U.S. tech companies will not be allowed to export technology to China.

Chinese Tech Giants Targeted Earlier

The U.S. government has prohibited indigenous mobile chipset developers and optical fiber component makers from selling products to ZTE. President Trump had issued an executive order to restrict select Chinese telecommunications giants primarily ZTE and Huawei Technologies from selling products in the United States.

Moreover, the U.S. government made AT&T Inc. (T - Free Report) drop Huawei smartphones from its offerings while Qualcomm Inc. (QCOM - Free Report) was barred from selling its chipsets to either Huawei or ZTE.

On Mar 12, Trump ordered to immediately prohibit the proposed $117 billion takeover bid of Singapore-based Broadcom for Qualcomm. The government argued that third party entities, especially, Huawei and ZTE may gain access to Qualcomm’s precious patents from Broadcom. At the 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.

Our Top Picks

President Trump has given enough indication that his administration will take special interest safeguarding the highly valuable patents of the American tech heavy companies from the Chinese tech behemoths.

At this stage, investors will be better off to investing in U.S. telecom equipment manufacturing companies, which are expected to benefit the most from upcoming U.S. tariffs on China.

We have narrowed down our search to the following stocks with favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) and strong growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our four picks in the last thee months.

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 #1. The company has expected earnings growth of 24.5% for current year. The Zacks Consensus Estimate for the current year has improved by 3.5% 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 stock carries a Zacks Rank #1. The company has expected earnings growth of 247.1% for current year. The Zacks Consensus Estimate for the current year has improved by 4.4% over the last 60 days.

Turtle Beach Corp. (HEAR - Free Report) is an audio technology company. It designs audio products for consumer, commercial and healthcare markets.  The stock carries a Zacks Rank #1. The company has expected earnings growth of 504.2% for current year. The Zacks Consensus Estimate for the current year has improved by 162.2% over the last 60 days.

Ubiquiti Networks Inc. (UBNT - Free Report) is engaged in the business of designing, manufacturing and selling broadband wireless solutions worldwide.  The stock carries a Zacks Rank #2. The company has expected earnings growth of 19.4% for current year. The Zacks Consensus Estimate for the current year has improved by 2% over the last 60 days.

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