U.S.-China trade talks could take longer to reach a definitive solution, owing to several unresolved disagreements between them. Issues such as intellectual property rights and China’s proposal of a six-year rise in its imports of U.S. goods need affirmative resolutions before an effective trade deal is cut.
Given the uncertainty on the trade deal front, it might be prudent to invest in a couple of domestic stocks that are well positioned for gains ahead and are less likely to bear the brunt of a prolonged trade war.
An Immediate Resolution to Trade Dispute is Unlikely
Highly unpredictable equity markets and a global economic slowdown have surfaced after the trade war commenced last July, with the United States and China slapping tariffs on each other’s imported goods.
Declining growth in China’s market has affected American companies that operate in the Asian nation as well, incurring strong dips in business. Recently, Apple (AAPL - Free Report) missed its revenue target due to falling iPhones demand in China. Automakers such as Ford Motor (F - Free Report) and General Motors (GM - Free Report) also suffered losses because of profit hits.
According to a Bloomberg report, a seven-month investigation concluded in early 2017 by the United States revealed China’s usage of foreign ownership restrictions to force U.S. companies into sharing technology with local firms and its theft of U.S. trade secrets via cyber attacks.
China assured in January that it would speed up the implementation of a new foreign-investment policy to protect intellectual property of foreign companies operating there and relieve strain on them to transfer technology. However, insufficient means of criminal penalties for violating the policy deemed the law ineffective.
Also, China’s offer to buy more U.S. goods over a span of six years is too long term and could have little effect to ramp up the U.S. economy in the near future.
U.S.-China Trade Deal Predictions
Strategists at JP Morgan Asset Management are doubtful whether any significant issue could be resolved between Washington and Beijing to reach a trade agreement, a CNBC report cited earlier this month.
Karen Ward, chief market strategist at J.P. Morgan Asset Management, said, “I think (the deal) would have to be extremely far-reaching for the markets to breath an enormous sigh of relief.” She added, “I don't think, unfortunately, that [the trade war] is something that will disappear from our horizon for the full year.”
JP Morgan’s skepticism echoes a Goldman Sachs report released last month which said that a deal is unlikely to be reached by Mar 1 to prevent higher tariffs. In case of a no-deal scenario, levies are scheduled to increase from 10% to 25% on $200 billion worth of Chinese products.
In addition, Bank of America Merrill Lynch economists noted that China’s slowdown could start reversing over the next few months owing to a large amount of domestic incentives such as monetary and credit easing, tax cuts, a weaker currency and spending increases.
While these factors could help China in fighting the ongoing trade war, the United States could see a dip in confidence as it has inadequate room for loosening policies. This could lead to a reversal in roles toward the end of 2019, when China’s economy could stabilize but U.S. economic growth might wane.
5 Domestic Stocks to Buy
We have hand-picked five stocks that have their business operations confined to the United States and are thus unperturbed by geopolitical tensions. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Capital City Bank Group, Inc. (CCBG - Free Report) is a banking and banking-related services provider to individuals and corporate clients in Georgia, Florida and Alabama. The bank carries a Zacks Rank #1.
Capital City Bank’s expected earnings growth rate for the current year is 37.50% compared with the ZacksBanks – Southeast industry’s projected rise of 27.10%. The Zacks Consensus Estimate for the company’s earnings rose 0.8% in the last 30 days.
G1 THERAPEUTICS (GTHX - Free Report) offers banking products and services in the United States. The financial institution carries a Zacks Rank #1.
G1 THERAPEUTICS’s expected earnings growth rate for the current year is 30.25% compared with the ZacksMedical - Biomedical and Genetics industry’s projected rise of 9.70%. The Zacks Consensus Estimate for G1 THERAPEUTICS’ earnings rose 5.7% in the last 90 days.
Recro Pharma, Inc. (REPH - Free Report) is a specialty pharmaceutical company that develops non-opioid products aimed to treat acute pain, mainly in the United States. The company carries a Zacks Rank #2.
The Zacks Consensus Estimate for the company’s earnings rose 0.4% in the last 60 days.
CatchMark Timber Trust, Inc. (CTT - Free Report) is a publicly-traded timberland REIT that aims to deliver better risk-adjusted returns to its stakeholders. The company carries a Zacks Rank #2.
The Zacks Consensus Estimate for CatchMark Timber Trust’s earnings rose 43.6% in the last 90 days.
The Habit Restaurants, Inc. (HABT - Free Report) operates casual restaurants under The Habit Burger Grill name and is headquartered in California. As of October 2018, Habit had 242 restaurants in the United States. The company carries a Zacks Rank #2.
The Zacks Consensus Estimate for Habit Restaurants’ earnings rose more than 100% in the last 90 days.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
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