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6 Stocks to Gain as Trump, Xi Hammer Out Trade Truce

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Following a closely watched meeting on Dec 1, the United States and China announced that they were temporarily putting their trade war on hold. Additional tariffs will not be imposed on imports by both countries from Jan 1, 2019. Instead, talks will continue between the two countries over the next 90 days to arrive at a solution to the lingering trade dispute.

China will also step up its purchases of specific U.S. goods. Most market watchers believe that even this temporary ceasefire will boost U.S. stocks significantly as the New Year approaches. Technology, materials and industrial stocks are likely to benefit the most from this agreement. Adding stocks from these sectors to your portfolio looks like a smart choice.

90-Day Freeze on Additional Tariffs Announced

Following a crucial meeting on the sidelines of the G-20 summit in Argentina, President Trump has decided to leave import duties on $200 billion of Chinese goods unchanged at 10%, abandoning plans to raise the rate to 25% from Jan 1.

Instead, officials from the United States and China will hold talks on a wide array of trade issues, including intellectual property, technology transfer and agriculture over the next 90 days. If the two countries are unable to reach an agreement at the end of this period, the tariff increase to 25% will come into place.

Meanwhile, China has also agreed to step up its purchase of energy, industrial and agricultural goods among other products from the United States. China will also crack down on Fentanyl and reconsider approving the QUALCOMM Incorporated (QCOM)-NXP Semiconductors N.V. (NXPI) merger.

Speaking to the press on Air Force Once, Trump described his agreement with China as an “incredible deal.” China’s foreign minister Wang Yi was equally exultant, saying that the agreement had “prevented the further expansion of economic frictions between the two countries.”

Ceasefire Likely to Boost U.S. Equity Markets

Ultimately, the temporary truce allows both sides to tout something to their home audiences. A larger volume of American agricultural exports will flow into China even as the Trump administration presses for deeper structural changes. Meanwhile, China has escaped additional tariffs, avoiding a worst-case scenario.

The Jan 1 deadline for a step-up in import duties had caused widespread panic among investors. Also weighing on the markets was Trump’s threat to slap tariffs on another $267 billion of Chinese imports. As a whole, tariffs-related worries had sparked a severe market downturn since early October.

Investors should breathe easy for a while as stocks likely chalk up big gains while the interim truce is in place. As of 4:15 AM ET, Dow futures had surged nearly 500 points, buoyed largely by the fresh trade truce. Some analysts even believe that a Santa Claus rally, more or less ruled out before the agreement, could actually come to pass.

Our Choices

The fresh trade agreement between Trump and Xi gives both sides something to cheer about. U.S. equity markets will also receive a significant boost from the truce, since it removes a longstanding headwind for stock gains.

Technology, materials and industrials stocks will likely gain the most from this development. This is why it makes sense to pick up select stocks from these sectors at this time. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. 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 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 based on a good Zacks Rank and VGM Score.

Intel Corporation (INTC - Free Report) is the world’s largest manufacturer of semiconductor products.

Intel carries a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. The company has expected earnings growth of 30.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 9.7% over the last 60 days.

Diodes Incorporated (DIOD - Free Report) is a leading manufacturer and supplier of high-quality discrete and analog semiconductor products.

Diode carries a Zacks Rank #1 and has a VGM Score of A. The company has expected earnings growth of 71.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.3% over the last 30 days.

Methanex Corporation (MEOH - Free Report) is the world’s largest supplier of methanol to North America, Asia-Pacific, Europe and Latin America.

Methanex carries a Zacks Rank #1 and has a VGM Score of A. The company has expected earnings growth of 63.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.6% over the last 60 days.

Harsco Corporation (HSC - Free Report) is a services and engineered products’ company.

Harsco has a VGM Score of B. The company’s expected earnings growth for the current year is 70.3%. The Zacks Consensus Estimate for the current year has improved by 2.4% over the last 30 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Encore Wire Corporation (WIRE - Free Report) is a low-cost manufacturer of copper electrical building wire and cable.

Encore Wire has a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 25.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 18.5% over the last 30 days.

Cleveland-Cliffs Inc. (CLF - Free Report) is the largest producer of iron ore pellets in North America.

Cleveland-Cliffs carries a Zacks Rank #2 and has a VGM Score of B. The company has expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 38.4% over the last 60 days.

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