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U.S. & China Reportedly Agree to Dump Tariffs: 5 Tech Picks

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On Nov 7, Reuters reported that Gao Feng, a spokesperson for China’s Commerce Ministry said that both United States and China have agreed to get rid of existing trade tariffs that were imposed in phases. Per Gao, both sides will eliminate some of the existing tariffs in order to reach the phase one of the broader trade deal.   

On Oct 11, President Donald Trump met with Chinese vice premier Liu He and said in the Oval Office that the United States has reached a “very substantial phase one deal” with China in a move to end their lingering tariff war. Since then, investors were eagerly waiting for at least a partial trade deal between the two countries.

Partial Trade Deal in the Offing

According to President Trump, the first phase of the deal will address issues related to safeguarding of U.S. intellectual property rights, including force transfer or theft of technologies, reform of the Chinese financial markets, and China’s practice of arbitrarily setting foreign-exchange rate. Moreover, China has agreed to purchase $40-$50 billion worth U.S. agricultural products.  

The U.S. government has scrapped its decision to raise tariff rates from 25% to 30% on $250 billon Chinese goods, mostly used as intermediaries for high-tech U.S. products, effective Oct 15. Also, the Trump administration is likely to drop its plan to levy a new set of 15% tariff on $160 billion Chinese exports, effective Dec 15, if trade negotiation moves in the right direction. The U.S. government may also provide licenses to U.S. tech companies to do business with the currently banned Chinese telecom behemoth Huawei Technologies.

Why Trade Solution is Important for Tech Sector

China is the largest trading partner of the United States. Moreover, China plays the role of a low-cost supplier of intermediary products and other inputs to high-tech U.S. industries. In 2018, the Trump administration levied tariffs on Chinese goods worth $250 billion. Most of these products were from the high-tech industrial sectors. U.S. companies that rely on Chinese imports are unhappy about the move as it raised prices of high-tech equipment and several electronics products.

On the other hand, a trade spat with the United States has resulted in a significant slowdown of China’s economy. However, strength in the Chinese economy will give U.S. high-tech companies a solid boost as China is also the largest market for the latter’s high-tech products.

A solution to the U.S.-China trade war is likely to restore Chinese and global economic growth, which in turn will create demand for high-tech U.S. products. Likewise, the repeal of tariffs on Chinese intermediary goods will raise the profit margin of U.S. tech giants.

Our Top Picks

At this stage, it will be prudent to invest in technology stocks with a favorable Zacks Rank. We have narrowed down our search to five such tech stocks that have skyrocketed in the past six months despite facing trade-induced market volatility and still have upside left. Each of these stocks carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

 

Communications Systems Inc. (JCS - Free Report) manufactures and sells connectivity infrastructure products for broadband and voice communications in North America, Europe, the Middle East, Africa and internationally. The company has an expected earnings growth rate of 142.3% for the current year. The Zacks Consensus Estimate for the current year has improved 87.5% over the last 30 days. The stock has jumped 194.6% year to date.

Cirrus Logic Inc. (CRUS - Free Report) is a fabless semiconductor company that develops, manufactures and markets analog and mixed-signal integrated circuits in the United States and internationally. The company has an expected earnings growth rate of 28.4% for the current year. The Zacks Consensus Estimate for the current year has improved 21.5% over the last 30 days. The stock has jumped 106.6% year to date.

Itron Inc. (ITRI - Free Report) provides end-to-end solutions that measures, manages, and analyzes energy and water use worldwide. It operates through three segments: Device Solutions, Networked Solutions, and Outcomes. The company has an expected earnings growth rate of 14.3% for the current year. The Zacks Consensus Estimate for the current year has improved 4.5% over the last 30 days. The stock has soared 69.1% year to date.

Alteryx Inc. (AYX - Free Report) operates a self-service data analytics software platform enabling organizations to enhance business outcomes and the productivity of their business analysts, data scientists and citizen data scientists worldwide. The company has an expected earnings growth rate of 3,000% for the current year. The Zacks Consensus Estimate for the current year has improved 20.8% over the last 30 days. The stock has soared 56.8% year to date.

Fortinet Inc. (FTNT - Free Report) is a leading provider of network security appliances and Unified Threat Management (UTM) network security solutions to enterprises, service providers and government entities worldwide. The company has an expected earnings growth rate of 29.4% for the current year. The Zacks Consensus Estimate for the current year has improved 5.8% over the last 30 days. The stock has surged 32.2% year to date.

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