Back to top

Buy 5 Low-Beta Stocks as US-China Trade Tensions Escalate

Read MoreHide Full Article

The trade conflict between the United States and China continues to escalate with each passing day. Notably, the conflict began in March. The U.S. stock markets have been facing severe volatility ever since primarily owing to imposition of various tariffs by the U.S. government and related trade conflicts.

With the Trump administration considering an increase tariff rate from 10% to 25% on the proposed sanction on Chinese goods worth $200 billion, the situation is likely to aggravate further in the near term. At this juncture, investment in low-beta stocks with favorable Zacks Rank will be a lucrative option.

U.S.-China Trade War Fear Reignites

Per Bloomberg, President Donald Trump has asked U.S. Trade Representative Robert Lighthizer to consider raising import duties from 10% to 25% on Chinese goods worth $200 billion. Notably, in an interview to CNBC on Jul 20, Trump said his administration will not hesitate to impose tariffs worth $505 billion on Chinese goods should the need arise.

Trump’s statement is a clear indication that the U.S. government will persist with trade conflicts with China as long as China doesn’t refrain from forcing the U.S. corporates into joint ventures with Chinese companies to do business in the country. Moreover, China can no longer coerce U.S. companies to transfer technology in order to form joint ventures.

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 digital industries. 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 primary Chinese industries which have come under first phase of 25% U.S. tariffs worth $50 billion. First part of these tariffs worth $34 billion was implemented from Jul 6 and the remaining $16 billion of tariffs will be implemented sometime soon.

Geopolitical Conflicts with Iran Escalates

In May, the United States walked out of the Iran nuclear pact formed in 2015. The Trump administration wants all countries to stop importing oil from Iran by Nov 4 or face the risk of U.S. sanctions. The scenario worsened after Jul 25, when Iran-backed Houthi rebels attacked two Saudi oil tankers passing through the Bab al-Mandab Strait.

The United States is gearing up for military action against Iran so that the key trade waterways in the Middle East remain open. Any military action that is taken against Iran will invlove Saudi Arabia. If military intervention is required for a longer period, other countries may also get involved. (Read More: Looming US Sanctions on Iran Could Boost Oil Stocks: 5 Picks)

Our Top Picks

Stock markets are likely to remain volatile in near future due to trade concerns, geopolitical conflicts and may be some sector specific issues. At this stage, investment in low-beta stocks will be fruitful. The beta is equal to 1 which means that the stock is as volatile as the market. So, a stock is relatively more volatile if it has beta greater than 1 and less volatile if beta is less than 1. However, picking winning stocks can be a difficult task.

This is where our VGM Score comes in handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below depicts price performance of our five picks in the last six months.

HCA Healthcare Inc. (HCA - Free Report) is a non-governmental hospital in the United States providing a network of acute care hospitals, outpatient facilities, clinics and other patient care delivery settings. It has a beta of 0.53. The company has expected earnings growth of 39.3% for current year. The Zacks Consensus Estimate for the current year has improved by 4% over the last 30 days.

PCM Inc. (PCMI - Free Report) is a technology solutions provider to businesses, government and educational institutions and individual consumers. It has a beta of 0.82. The company has expected earnings growth of 82.5% for current year. The Zacks Consensus Estimate for the current year has improved by 12.9% over the last 30 days.

Mammoth Energy Services Inc. (TUSK - Free Report) is engaged in the exploration and development of North American onshore unconventional oil and natural gas reserves and energy infrastructure. It has a beta of 0.66. The company has expected earnings growth of 301.4% for current year. The Zacks Consensus Estimate for the current year has improved by 3.3% over the last 30 days.

The Progressive Corp. (PGR - Free Report) provides personal and commercial property-casualty insurance, other specialty property-casualty insurance and related services primarily in the United States. It has a beta of 0.68. The company has expected earnings growth of 66.9% for current year. The Zacks Consensus Estimate for the current year has improved by 6% over the last 30 days.

TransAlta Corp. is Canada's largest non-regulated electric generation and marketing company. It has a beta of 0.66. The company has expected earnings growth of 283.3% for current year. The Zacks Consensus Estimate for the current year has improved by 10% over the last 30 days.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

More from Zacks Analyst Blog

You May Like

Published in