Markets are expected to remain turbulent due to investors’ concerns over the consequences of President Donald Trump’s protectionist trade policies, China’s plan to put sanctions on America and the impending U.S. sanctions on Iranian oil. However, instead of staying away from the stock market, betting on stocks that have been faring well despite these concerns could be a wise decision.
The S&P 400 Mid-Cap index has marginally outperformed the S&P 500 since discussions related to the trade policy started six months back. This indicates that investors preferred mid-cap stocks over others during this period.
Moreover, evaluating the historical performance of mid-cap stocks against large-cap and small-cap ones, it can be seen that the former cohort has generated the best risk-adjusted returns.
Before we present a few top-ranked mid-cap stocks, let’s take a look at what might keep the market’s performance subdued in the quarters ahead.
No Immediate Solution to U.S.-China Trade War
The Trump administration’s business policies have no place for China’s strategy of eliminating business competition for its own companies within its boundaries but to enter foreign markets for grabbing external business. The ongoing trade war is a result Washington’s intolerance to these unfair trade practices.
The trade conflict, which started on Jul 6 with both nations slapping 25% tariffs on $34 billion worth of each other’s goods, has witnessed $50 billion worth of goods under tariff fire to date. Another $200 billion worth of Chinese products await levies to be put in place.
Trump is considering taxes on $267 billion worth of more goods, which would bring practically every Chinese export to U.S. under the tariff blanket. The trade war has already affected U.S. agriculture, food, energy, auto and technology sectors among others, and some large-cap stocks exposed to the Chinese markets, taking a hit.
China Seeks WTO Permission for U.S. Sanctions
A dispute initiated by China in 2013 reached full scale this year, fueled by the continuing trade war with the United States. China has asked for a go-ahead from the World Trade Organization (WTO) before it puts sanctions worth $7 billion for damages suffered annually, owing to U.S. dumping duties.
The United States put these duties on some Chinese products it felt were priced lesser than their American counterparts, thus making profits in the highly competitive American market. Dumping duties worth of $8.4 billion were put on Chinese exports of metals, minerals, electronics and machinery etcetera.
The sanctions will be in the form of additional trade barriers on the United States and will worsen its trade relationship.
Ongoing Trade Conflicts with Major U.S. Allies
The Trump administration put steel and aluminum tariffs on its many trade partners in May. The tariffs weren’t taken lightly by Canada, Mexico and the European Union, which retaliated with different tariffs on American products.
The bitter standoff was somewhat cooled by a possible U.S.-Mexico trade accord which is a revised version of the North Atlantic Free Trade Agreement last month. Although Canada rejoined the talks, it hasn’t confirmed if it’s a part of the revised agreement. The original agreement comprised the three nations.
The conflicts have affected U.S. auto, agriculture, food and consumer discretionary among others. Unless a settlement is reached, more industries might suffer.
Imminent U.S. Sanctions on Iranian Oil
As U.S. gears up to put sanctions on Iran’s (effective Nov 5) crude oil, the latter’s likely retaliatory activities to stagnate oil shipments via the Strait of Hormuz have become a global concern. Almost one-third of the world’s sea-traded crude shipments from Saudi Arabia, United Arab Emirates, Kuwait, Iran and Iraq make their way via the crucial waterway.
Iran’s measures could not only hurt global oil shipments but also invite military action by Saudi Arabia, United State’s ally. Geopolitical tensions mounting in the Middle East are likely to put an upward pressure on oil prices, hiking transportation and trade costs for American companies operating in the region.
Stocks to Buy
As mid-cap stocks are expected to perform better than the other segments, here we present five stocks that have a market cap between $1-$3 billing and carry a Zacks Rank #1 (Strong Buy).
These stocks also carry a VGM Score of A or B.
ArcBest Corporation (ARCB - Free Report) provides freight transportation services and solutions.
Market Cap: $1.3 billion
VGM Score: A
Estimated Earnings Growth for Fiscal 2018: 143.6%
Price Return Performance Year to Date: 41.5%
Atkore International Group Inc. (ATKR - Free Report) manufactures and distributes electrical raceway items.
Market Cap: $ 1.2 billion
VGM Score: A
Estimated Earnings Growth for Fiscal 2018: 92.3%
Price Return Performance Year to Date: 22.4%
You can see the complete list of today’s Zacks #1 Rank stocks here.
Universal Logistics Holdings, Inc. (ULH - Free Report) offers transportation services to shippers in the United States and Canada’s Quebec and Ontario.
Market Cap: $1 billion
VGM Score: A
Estimated Earnings Growth for Fiscal 2018: 157.5%
Price Return Performance Year to Date: 48.4%
Werner Enterprises, Inc. (WERN - Free Report) is a premier transport and logistics company. Its domestic and global subsidiaries operate transportation services via ocean, air and road.
Market Cap: $2.7 billion
VGM Score: B
Estimated Earnings Growth for Fiscal 2018: 75.6%
Price Return Performance Year to Date: -0.1%
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>>