President Trump has finally decided to drop plans of imposing a hard-hitting policy that would curb Chinese investments in the United States. Trump, instead, opted for a softer stance that might temporarily defuse tensions with China.
As the White House made a retreat, large-cap Internet and chip stocks, and big investment banks with substantial exposure in China are sure to make a comeback. Hence, it makes sense to invest in such stocks before they pick up pace. Lest we forget, such stocks have strong fundamentals and a favorable macroeconomic scenario only adds to the positives.
Trump Drops New Restrictions on China Investments
Trump dropped plans of imposing new restrictions on Chinese investments in the United States and American technology exports to the Asian nation. In fact, the Trump administration adopted a less confrontational approach with the world’s second-largest economy and seeks cooperation with the Congress.
Trump took the decision after his administration cautioned that the new restrictions would affect the economy. Trump also faced criticism from lawmakers for his aggressive stance.
Trump, in the meantime, was irked by new stories, particularly a Wall Street Journal article that said the administration was going ahead with a new set of restrictions for China. Trump ordered Treasury Secretary Steven Mnuchin to “push back” on the report and that he wasn’t “leaning in that direction”, as per a White House official.
Mnuchin himself called the article “fake news” in a subsequent tweet. He sought to play down trade tensions with China and said that “our objective is not to single out China or treat them differently.” He added that the United States does “encourage an open investment system.”
Such a reversal in stance was greeted by China. Of course it is welcome news as the United States is supposed to levy tariffs on $34 billion in imports from China starting July 6. Trump has also threatened to impose tariffs on nearly $400 billion more of goods imported from China. White House senior trade adviser Peter Navarro and U.S. trade representative Robert Lighthizer had argued that the Trump administration took this tough stance as China posed a fundamental threat to the United States in terms of technology and innovation (read more: U.S.-China Trade Spat Hits Fever Pitch: Top & Flop Stocks).
Trump Takes a Softer Stance
So, what are the steps taken by the Trump administration instead of the investment restrictions? The White House did mention that it will rely on an interagency group, the Committee on Foreign Investment in the United States or CFIUS. This group will screen foreign investments that particularly endanger national security.
The Trump administration’s softer approach was in stark contrast to that of the hardliners. Trade hawks such Peter Navarro wanted the government to use the International Emergency Economic Powers Act of 1977 or IEEPA. This law was used as sanctions over terrorist acts. But, using it in a trade-related dispute was nothing but overkill.
High-flyers Set to Rebound: 4 Solid Choices
Any escalation in trade tensions between the United States and China could be very disruptive. It could even lead to a full-blown recession and eventually squeeze corporate profits. Highflying large-cap Internet and semiconductor stocks as well as financial behemoths with significant exposure in China, thus, took a beating. The broader market wasn’t spared either. While the Dow closed below its 200-day moving average for a third straight session on Jun 27, the S&P ended at its lowest level since May 29 and the Nasdaq also closed at its lowest since May 31.
But, Trump’s softening his overseas investment stance will surely help these high-flying stocks stage a comeback. After all, their underlying fundamentals remain strong. While emergence of cloud data-centers and artificial intelligence (AI) to name a few will drive demand for tech and chipmakers, rising interest rate scenario bodes well for financials (read more: Fed Lifts Rates for the Second Time in 2018: Winners & Losers).
We have, thus, selected four such stocks from the aforesaid sectors that are ready to bounce back. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Micron Technology, Inc. (MU - Free Report) provides semiconductor systems worldwide. The stock currently has a Zacks Rank 1. In the last 60 days, nine earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings increased 6.6% in the same period.
Micron Technology tanked 4.3% on Jun 27. But the stock is expected to return a staggering 63.4% and 136.3% in the current quarter and year, respectively (read more: Micron's Blowout Earnings Drive Chipmakers: 5 Top Picks).
NVIDIA Corporation (NVDA - Free Report) operates as a visual computing company worldwide. The stock currently has a Zacks Rank 1. In the last 60 days, 12 earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings moved up 12.5% in the same period.
NVIDIA lost 2.6% on Jun 27. However, the stock is expected to give a whopping return of 81.2% and 61.2% in the current quarter and year, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.
Facebook, Inc. (FB - Free Report) provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. The stock currently has a Zacks Rank 2. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 0.7% in the same period.
Facebook slipped 1.6% on Jun 27. But the stock is expected to give a solid return of 30.3% and 23.9% in the current quarter and year, respectively.
The Goldman Sachs Group, Inc. (GS - Free Report) operates as an investment banking, securities, and investment management company worldwide. The stock, currently, has a Zacks Rank 2. In the last 30 days, two earnings estimates moved up, while none moved down for the current year. The Zacks Consensus Estimate for earnings rose 0.4% in the same period.
Goldman Sachs dropped 0.6% on Jun 27. But the stock is expected to yield a solid 20.5% and 18.3% in the current quarter and year, respectively.
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