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U.S.-China Trade Deal Could Pump Up These Stocks

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This week’s progress in trade talks between the United States and China could finally lead to a favorable trade deal that the former had been demanding for a long time. All three major U.S. indexes closed higher on Feb 13 trading, boosted by growing investor optimism.

Investor worries around the Mar 1 deadline eased after President Donald Trump said on Feb 13 that he may consider letting the deadline “slide” if both sides were making adequate progress. According to a Bloomberg report, Trump is considering a 60-day extension of the deadline to give more time to the two-way talks.

In fact, China’s President Xi Jinping is set to meet Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer on Feb 15 to hold high-level talks in order to reach a deal before early March. The U.S. delegation is already in talks with Chinese Premier Liu He.

Given the optimism around a favorable deal and fast-paced developments on both sides, this makes it the right time to track a few stocks that might get a boost soon.

These Stocks Could Jump on a U.S.-China Trade Deal

While a trade deal would undoubtedly bring a relief rally in equity markets, it also means that some tariff-sensitive stocks could turn around the moment a deal is struck. These stocks have been underperforming the broader market in recent times because of their revenue exposure to Chinese markets. The resultant cheap valuations of these stocks offer a desirable buying opportunity at present.

Broadcom Inc. (AVGO - Free Report) is one of those few companies that are set to benefit from the transition to 5G by virtue of its nature of business. The semiconductor devices developer focuses on a broad range of chips that enable wireless capacities in smartphones, e.g., Bluetooth and Wi-Fi. In addition, its 54% revenue exposure to China (per an HSBC report) opens doors to handsome gains in a favorable-trade-deal-scenario.

Broadcom’s expected earnings growth rate for the current year is 9.7% compared with the Zacks Electronics - Semiconductorsindustry’s projected rise of 4.6%. The Zacks Consensus Estimate for current year earnings has advanced 4.2% over the last three months. The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intel Corporation (INTC - Free Report) projects itself as an end-to-end 5G services and solutions provider. Its successful diversification of its businesses over the years has made it one of the leading players in areas such as Internet of Things and autonomous driving. The networking and communications company has a 24% revenue exposure to the Chinese market (per the HSBC report).

Given the likelihood of China overtaking U.S. in data generation by 2025 by implementing technologies such as the Internet of Things, the probability of Intel making the most of China’s efforts is high. According to a study by data storage firm Seagate and the International Data Corporation, data created and replicated in China will be 3% higher than the global average, a CNBC report cited.

Intel’s expected earnings growth rate for the next year is 5.1% compared with the Zacks Semiconductor – Generalindustry’s projected rise of 0.2%. The stock carries a Zacks Rank #3.

Shares ofMarvell Technology Group Ltd. (MRVL - Free Report) underperformed in the industry in 2018, largely driven by tariffs. The $12.75 billion market-cap company has a 50% exposure to Chinese revenues (per the HSBC report), which is likely to get a boost if a noteworthy trade deal comes through. According to a Zacks report, the company is benefiting from strong growth in storage and networking business.

In addition, Marvell’s 4G LTE products could drive growth. The company’s restructuring activities are aimed at boosting operational efficiency, which could also prove to be a growth driver.

The stock carries a Zacks Rank #3 (Hold). The company has outperformed the broader Semiconductor - Communications industry over the past three-month period (+19.8% vs +17.6%).

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