This weekend the big market news came from Argentina, where US President Donald Trump met with Chinese President Xi Jinping Saturday night.
The two leaders discussed trade policy, an important matter as the two countries – the world’s first and second largest economies – are widely seen as blundering their way into a trade war.
Following the meeting President Trump tweeted, “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%.”
However, spokesmen from both governments since claimed that nothing so comprehensive was finalized. Apparently what both leaders had agreed to Saturday evening was a halt to tariff escalation and the temporary cancellation of planned increases scheduled for January 1, 2019 while trade negotiations continue for another 90 days.
According to the White House, the US and China agreed to “immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft.” This was backed up in essentials by Chinese Foreign Minister Wang Yi, who told reporters that “the principal agreement has effectively prevented further expansion of economic friction between the two countries.”
Stock Markets Rally- Then Fall
After word broke of the agreement between the US and Chinese leaders, market futures began surging. However, conflicting reports of just how positive recent events were left investors nervous. And thus the market crashed again. For example, on Tuesday morning Trump tweeted that his advisers would work “on seeing whether or not a REAL deal with China is actually possible.”
Stocks with China Exposure Stand to Gain
Nonetheless there is still a distinct possibility that a trade true will occur- and within the 90 days. “President Xi and I want this deal to happen, and it probably will,” Trump wrote. (Although with the caveat: “But if not remember,……I am a Tariff Man.”)
In the meantime, we can use the TipRanks analyst ratings and database to look at some stocks that stand to benefit from freer trade between the US and China, and a reduction in a tit-for-tat tariff contest. The main beneficiaries – among US companies – will be those that depend on cheap imported raw materials, produce specialty industrial goods, or depend on access to China’s growing markets.
Here are four companies worth keeping a closer eye on:
General Motors Company (GM – Research Report)
General Motors is well known as one of Detroit’s ‘Big Three,’ the three biggest automakers in the US. Regarding Chinese tariffs, GM stands to benefit from cheaper imports of Chinese raw materials and an ‘open door’ to the Chinese auto market. About 10% of China’s car imports (280,000 units) come from the US.
GM faces the tariff issue from a position of strength. The company recently announced a restructuring, including elimination of the unpopular and expensive Chevy Volt hybrid electric vehicle, which has market watchers taking a more optimistic look at the company. Adam Jonas (Track Record & Ratings) of Morgan Stanley, gives GM a ‘Buy’ rating with a $44 price target, for a 15% upside from current levels.
GM stock currently sells for $38, with a 31% upside coming from the average price target of $50. The ‘Strong Buy’ analyst consensus is based on six recent ‘buy’ ratings.
Caterpillar, Inc. (CAT – Research Report)
Caterpillar, as an international maker of heavy construction equipment, will benefit on both ends from a loosening in US/China trade. Cheaper imported raw materials will make their end products more affordable, and lower tariff barriers will make those same end products easier to market to China’s large construction industry.
Caterpillar, like much of the market, saw sharp drops in mid-October and mid-November. The company has managed to recover about half the total losses, however, and went into the weekend with a 4% gain in the Friday trading session.
USB’s Steven Fisher (Track Record & Ratings) said that a meeting with CAT dealers “confirmed that regional project activity remains solid and it is difficult for machinery providers to keep up with demand.” Fisher added that “there are signs that nonresidential activity may be flattening, but the public sector growth remains solid.” His price target of $160 suggests a 15% upside.
Meanwhile Credit Suisse’s Jamie Cook (Track Record & Ratings) concurs on CAT’s potential. His price target is $183, giving a 32% upside. Cook’s aggressive target suggests a more optimistic view of the company’s position. Cook has a 74% success rate when recommending CAT stock, with a 25% average return. Right now, CAT is trading at $138, and the 13% upside is based on an average price target of $158. The analyst consensus is a ‘Moderate Buy.’
Boeing Company (BA – Research Report)
Boeing’s main business with China, like other industrial producers, lies in importing raw materials. At the same time, like CAT, Boeing has an opening to China’s import market – with lower tariffs, Boeing civilian aircraft will be better able to compete with China’s emerging native aircraft industry.
The company recently received a ‘Buy’ rating from Cowen analyst Cai Rumohr (Track Record & Ratings), who says production efficiency “is expected to drive cash flow per share to above consensus in 2019.” Rumohr’s price target, of $445, is 24% upside from the current share price of $359.
The analyst consensus on Boeing is currently a cautiously optimistic ‘Moderate Buy.’ The company has benefited from defense industry contracts, as well as strong orders for the 737-MAX airliner. Boeing’s average price target of $416 gives it a 15% upside potential.
Apple, Inc. (AAPL – Research Report)
As one of the world’s largest tech stocks, Apple can stand in proxy for its industry. Lowering Chinese tariffs will mean easier access to the rare earth metals that most tablet and smartphone devices depend on, as well as a more competitive product to reimport to the Chinese high-tech market.
In addition, Apple in particular stands to make a gain: iPhones were on the list of goods set to come under the new tariff policy, and that has now been delayed by at least three months. A loosening of US tariffs on Chinese trade would directly benefit as much as 25% of Apple’s revenue stream.
The benefits are not limited just to Apple; companies in the tech giant’s European supply chain also gained, especially the Dutch firm STMicroelectronics and the Frankfurt-listed Dialog Semiconductor. AMS, a Swiss company that designs facial recognition sensors, also posted sharp gains.
Apple remains a ‘Moderate Buy’ in the TipRanks analyst consensus. JPMorgan analyst Samik Chatterjee (Track Record & Ratings) gives a bullish target of $266, and notes that “the current valuation ‘sets a fairly low bar’ on Apple shares.” He sees the current price as a chance to buy into AAPL at a bargain.
Enjoy Research Reports on the Stocks in this Article:
Apple, Inc. (AAPL) Research Report
Boeing Company (BA) Research Report
Caterpillar, Inc. (CAT) Research Report
General Motors Company (GM) Research Report
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