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Will Trade Conflicts Derail Bull Run? 5 Low-Beta Stock Picks

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Wall Street commenced trading in September on a negative note after witnessing a robust August, which was the best in the last four years. On Sep 3, all three major stock indexes closed in negative territory as trade-related conflicts between the United States and two of its largest trading partners – China and Canada – reignited once again.

With the Trump administration contemplating the possibility of increasing the 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.

US-China Trade Conflicts Escalate

On Aug 30, Bloomberg reported that President Trump is moving ahead with fresh tariffs worth $200 billion to be imposed on a vast array of Chinese goods ranging from selfie sticks to semiconductors. The time line for submitting comments from companies and members of the public will end on Sep 6. Trump is considering levying next round of tariffs by the end of this week. The two sides have already imposed $50 billion tariffs on each other.

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.

US-Canada Trade Talk Remains Inconclusive

Last week, the United States and Canada failed to reach a new bilateral agreement to replace the 24-year old "North American Free Trade Agreement" (NAFTA) which was formulated between the United States, Mexico and Canada. Notably, on Aug 27, Mexico and the United States entered into a new bilateral trade deal.

Over the weekend, Trump threatened to eliminate Canada from the new NAFTA pact in a tweet. Trump also warned the U.S. Congress not to intervene in the Canada deal. In fact, Trump has threatened to "simply terminate NAFTA entirely" if Congress intervenes.

However, the two sides agreed to continue negotiations this week as Trump stated that he still stands by his previously stated time frame of late November to form a new deal with Canada in order to replace NAFTA.

Trump May Pull Out of WTO

On Aug 30, President Trump said Bloomberg that United States may pull out World Tarde Organization (WTO), globally the largest multilateral trade treaty, if the trade body does not give due importance to the U.S. trade concerns. If the United States leaves WTO, it will be a severe blow to global trade and economic prosperity.

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. If beta is equal to 1 it 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 three months.

Johnson Outdoors Inc. (JOUT - Free Report) is a leading global outdoor recreation company that turns ideas into adventure with innovative, top-quality products with a portfolio of consumer-preferred brands across Watercraft, Marine Electronics, Diving and Outdoor Equipment. It has a beta of 0.53. The company has expected earnings growth of 46.6% for current year. The Zacks Consensus Estimate for the current year has improved by 11.4% over the last 30 days.

DSW Inc. (DSW - Free Report) operates as a branded footwear and accessories retailer in the United States. The company offers dresses, casual and athletic footwear, and accessories under various brands for women, men, and kids. It has a beta of 0.63. The company has expected earnings growth of 14.5% for current year. The Zacks Consensus Estimate for the current year has improved by 8.1% over the last 30 days.

Global Brass and Copper Holdings Inc. (BRSS - Free Report) is a converter, fabricator, distributor and processor of copper and brass products primarily in North America. It has a beta of 0.09. The company has expected earnings growth of 14.8% for current year. The Zacks Consensus Estimate for the current year has improved by 6.3% over the last 30 days.

Luxfer Holdings plc. (LXFR - Free Report) is a materials technology company specializing in the design, manufacture and supply of high-performance materials, components as well as gas cylinders. It has a beta of 078. The company has expected earnings growth of 39.2% for current year. The Zacks Consensus Estimate for the current year has improved by 10.1% over the last 30 days.

Patrick Industries Inc. (PATK - Free Report) manufactures and distributes building products and materials for the recreational vehicle, marine, manufactured housing, and industrial markets in the United States and Canada. It has a beta of 0.76. The company has expected earnings growth of 49.4% for current year. The Zacks Consensus Estimate for the current year has improved by 2.2% over the last 30 days.

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