Since June 2018, the United States and China have been involved in a blistering trade conflict, with neither willing to back off. The situation intensified on Aug 1, when President Donald Trump announced plans to impose a 10% tariff on $300 billion Chinese products.
The United States blacklisted Chinese giant Huawei from trading and imposed a ban on all government purchases, citing national security concerns. On Aug 5, China allowed the yuan to fall to its lowest point in 11 years, leaving investors in shock. Subsequently, Trump accused China of manipulating its currency. China retaliated by halting the purchase of agricultural products.
In this volatile market, stocks of domestic companies play a crucial role. These companies, especially those dealing in utilities, real estate and operations, are least affected by any trade tension as they are confined within the country’s boundary.
Trade War Fear Looms on MNCs
Even after the news of delay in tariff, stocks which deal with production remain clouded. Product-based companies tend to depend on import and export for acquiring raw materials and selling finished goods. However, with the prevailing trade war, these companies, especially chipmakers, are losing as they cannot sell their product to big consumers like Huawei and ZTE.
Top companies in the tech world like Microsoft Corporation (MSFT - Free Report) , Amazon.com, Inc. (AMZN - Free Report) , Sony Corporation (SNE - Free Report) and Nintendo Co., Ltd. (NTDOY - Free Report) are looking to shift production units away from both these economic giants to safer places in Southeast Asia and India. As reported by the Federal Reserve, U.S. industrial output fell by 0.2% and manufacturing fell 0.4% in July, with declines specifically across the durable and non-durable goods’ sectors.
Amid this intensified trade war, multi-national companies are planning to shift operations to developing countries in Southeast Asia and some have already announced the move. These countries are not yet affected by the trade war and have a surplus of cheap labor available.
Recently, Inventec announced plans to move its entire U.S.-bound laptop operations to Taiwan. The company also assembles Apple's AirPods and notebook computers for HP that accounts for nearly one-third of Inventec’s revenues.
Domestic Firms Are Safer Calls
Domestic firms that cater to customers within the United States like, utilities, regional banks, and entertainment companies are least impacted by a trade war. These firms do not require regular imports for functioning. Hence, during a trade war, they are largely shielded from its impact and can remain in business.
Moreover, these sectors fall under the jurisdiction of the U.S. government and have logistical boundaries. These stocks are less attractive during a bear market as their area of business is comparatively small, but is beneficial during trade tussles.
5 Stocks You Should Grab Right Now
Following signs of intensifying trade war between the United States and China, shares of multi-national companies are highly volatile. Utilities and domestic banks are not only region specific, but also have fixed demand.
We have narrowed our search based on companies providing services only in the United States as investing in these seem wise. These five stocks also flaunt a Zacks Rank #1(Strong Buy) or 2 (Buy).
Meridian Bank (MRBK - Free Report) is a publicly traded bank. It offers deposit accounts, credit products, real estate financing, residential mortgages, investment and wealth management and electronic payments processing services. Meridian Bank’s expected earnings growth rate for the current year is 9.85%. The Zacks Consensus Estimate for current-year earnings has improved 3.6% over the past 60 days. The company sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
OFG Bancorpk (OFG - Free Report) is a publicly-traded financial holding company. Its products and services consist of consumer banking and lending, commercial banking, and wealth management. Meridian Bank’s expected earnings growth rate for the current year is 18.42%. The Zacks Consensus Estimate for current-year earnings has improved 3.4% over the past 60 days. The company holds a Zacks Rank #1.
American States Water Company (AWR - Free Report) is a publicly traded utility conglomerate. It provides water service to customers in Northern, Coastal and Southern California. The company also distributes electricity to customers in the Big Bear recreational area of California. AWR’s expected earnings growth rate for the current year is 18.6%. The Zacks Consensus Estimate for current-year earnings has improved 2.5% over the past 60 days. The company carries a Zacks Rank #1.
SeaWorld Entertainment, Inc. (SEAS - Free Report) is a publicly traded, family-friendly entertainment and amusement park company headquartered in Orlando, FL. It operates 12 theme parks including five water parks solely in the United States. Seaworld’s expected earnings growth rate for the current year is 209.6%. The Zacks Consensus Estimate for current-year earnings has improved 12.6% over the past 60 days. The company holds a Zacks Rank #2.
Unitil Corporation (UTL - Free Report) is a publicly traded utility company that serves New Hampshire, Massachusetts and Maine with electricity and natural gas. Unitil’s expected earnings growth for the current year is 4%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. The company holds a Zacks Rank #2.
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