On Aug 2, the S&P 500 suffered its worst weekly decline of the year on renewed trade tensions. In a series of tweets, President Trump stepped up the protectionist rhetoric against China. He also announced fresh tariffs on the country’s imports. Trump sent out another barrage of tweets on Aug 3, defending his decision to impose fresh tariffs on China.
China hit back on Aug 5 by allowing the yuan to plummet and stopping all imports of American agricultural goods. Experts now believe that these tensions will continue in the long term, with Trump’s policies likely to remain in place even if he loses next year’s presidential polls.
Given this backdrop, investing in U.S.-focused industries such as regional banks and homebuilders with a domestic focus looks like a smart option.
Trump Imposes New Duties on China Imports
On Aug 2, President Trump announced that he would impose a new 10% duty on additional $300 billion worth of Chinese goods. These fresh tariffs, which will be effective Sep 1, will now target virtually all of China’s imports to the United States. These duties span a wide range of products, from smartphones to clothing.
In fact, Trump ignored the views of his advisors on this issue despite a heated round of discussions. Reportedly, he remained adamant that tariffs were the best method to get China to fall in line with American demands. China’s foreign minister Wang Yi criticized the decision, saying tariffs were “not a constructive way to resolve economic and trade frictions.”
Duties Likely to Remain in Place Post 2020
The battle lines have hardened with Beijing promising to respond in kind to Trump’s latest salvo. For starters, Chinese authorities let the yuan fall to its lowest level in a decade on Aug 5. The People’s Bank of China attributed the plunge to Trump’s protectionist policies “as well as expectations of more tariffs on China”.
Meanwhile China’s state-owned enterprises have been asked to cease imports of all U.S. agricultural goods. A section of experts is more or less certain that protectionist trade policies are likely to remain firmly in place. Last week, former U.S. ambassador to China, Gary F. Locke, said these measures will stay in place “even with a possible change of administration in 2020.”
President Trump seems keen to boost his trade rhetoric ahead of the 2020 U.S. presidential elections. He seems convinced that tariffs are the best way to get China to agree to America’s demands, regardless of the domestic economic fallout in the interim.
Investing in stocks of U.S.-focused companies such as homebuilders and regional banks would be prudent in such an environment. They would likely provide better returns compared to their peers with higher overseas exposure. 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.
Meritage Homes Corporation (MTH - Free Report) is one of the leading designers and builders of single-family homes.
Meritage Homes has a Zacks Rank #1 (Strong Buy) and VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 12.3% over the past 30 days.
Taylor Morrison Home Corporation (TMHC - Free Report) is a public homebuilder and land developer operating in the United States.
Taylor Morrison has a Zacks Rank #1 and VGM Score of A. The company’s expected earnings growth for the current year is 4.1%. The Zacks Consensus Estimate for the current year has improved by 5.4% over the past 30 days.
M/I Homes, Inc. (MHO - Free Report) is one of the leading builders of single family homes in the United States.
M/I Homes has a VGM Score of A. The company’s expected earnings growth for the current year is 15.1%. The Zacks Consensus Estimate for the current year has improved by 9% over the past 30 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Popular, Inc. (BPOP - Free Report) is a diversified, publicly owned bank holding company.
Popular has a Zacks Rank #2 (Buy) and VGM Score of B. The company’s expected earnings growth for the current year is 41.1%. The Zacks Consensus Estimate for the current year has improved by 2.1% over the past 30 days.
Pinnacle Financial Partners, Inc. (PNFP - Free Report) is the bank holding company for the Pinnacle Bank which offers a variety of banking products and services in the United States.
Pinnacle Financial Partners has a Zacks Rank #2 and VGM Score of B. The company’s expected earnings growth for the current year is 10.9%. The Zacks Consensus Estimate for the current year has improved by 2.5% over the past 30 days.
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