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6 Stocks to Gain From a US-China Trade Deal

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Fresh optimism over a possible solution to the U.S.-China trade deadlock buoyed markets on Dec 12. A series of developments were the primary catalysts to this new-found optimism. Firstly, President Trump indicated on Dec 11 that he will step in to resolve the crisis over a top Huawei executive if it helps to ease trade relations with China. 

Additionally, The Wall Street Journal reported on Dec 12 that China is working toward offering foreign companies greater access to its domestic market. Previously, China had reportedly offered to make key concessions in order to resolve the lingering trade conflict during a conversation with top U.S. officials.

These developments indicate that a U.S.-China trade deal is increasingly likely over the next few months. Technology, materials and industrial stocks are likely to benefit the most from such an agreement. Picking stocks from these sectors would be prudent at this point.

Trump Ready to Intervene in Huawei Executive Crisis

Speaking to Reuters on Tuesday, President Trump said that he was willing to intervene in the crisis created by the arrest of a top Huawei executive if it helped to improve trade relations with China. Trump said that he would step in if he thought “it’s good for what will be certainly the largest trade deal ever made.”

Trump also sounded confident about arriving at a trade deal with China. He said that telephonic discussions were being held with China on trade issues. This was possibly a reference to the teleconference held on Dec 11 between top U.S. and Chinese officials. According to Trump, additional meetings between U.S. and Chinese officials are likely to take place in the near future.

China May Offer Greater Access to Foreign Companies

According to The Wall Street Journal, China is looking to replace its Made in China 2025 plan with a policy which offers foreign companies greater access to its domestic market. President Xi’s ambitious Made in China 2025 plan aimed at making China a leader in cutting edge technologies. Robotics, information and clean-energy cars were some of the focus areas of this blueprint.

However, Beijing is now looking to introduce a fresh policy which will tone down China’s attempt to dominate the manufacturing space. Instead, China’s domestic sector would welcome greater participation from foreign companies. The new plan is likely to be launched next year, at a time when the United States and China are in the final stages of negotiating a much-awaited trade deal.  

Incidentally, on Dec 11, China reportedly made fresh overtures to the United States to end the long-standing trade impasse. Suggested measures include an increase in offtake of soybeans and other crops. The most significant of these measures is a proposal to reduce tariffs on U.S. autos from 40% to 15%. (Read: Auto Stocks Gain on Reports of China Tariff Cuts: 5 Picks)

Our Choices

Several developments over the course of this week indicate that both the United States and China are eager to end their lingering trade war. President Trump has also indicated that he will go an extra mile to resolve these tensions. He has even offered to intervene in the case of the top Huawei executive whose arrest had heightened trade tensions.

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 B. 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 60 days.

Schnitzer Steel Industries, Inc. (SCHN - Free Report) collects, processes and recycles metals by operating one of the largest metals recycling businesses in the United States.

Schnitzer Steel carries a Zacks Rank #1 and has a VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 60 days.

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

Harsco has a VGM Score of A. 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 60 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 B. 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 60 days.

Celanese Corporation (CE - Free Report) is a global hybrid chemical company. Celanese has a Zacks Rank #2 and VGM Score of A. The company has expected earnings growth of 47.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.4% over the last 30 days.

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>



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