One of the main reasons for a terrific Wall Street turnaround from the 2018 mayhem is continued flow of positive news on the trade conflict between the United States and China. Trade-related issues were mainly behind the stock market rout in the fourth quarter of 2018. The lingering trade tussle is finally likely to be heading for an interim solution in January.
The possibility of the signing of the phase-one trade deal between the United States and China in early January significantly boosted investors’ sentiment in December. This is a major step toward resolving a nearly two-year long trade dispute between the two largest trading countries of the world. This trade dispute and subsequent tariff war not only affected the economies of the United States and China but also slowed global economic growth.
Possible Phase-One Deal in Early January
On Dec 13, the United States and China declared that they have reached a phase-one trade deal likely to be signed by the two presidents in the first half of January.
U.S. Trade Representative Robert Lighthizer said the deal will address intellectual-property disputes along with strong enforcement provisions and financial services and currency issues in addition to tariff rollback and higher agricultural purchase. Notably, China has reportedly agreed to substantially raise its agricultural imports from the United States to $40 billion.
On Dec 23, The Wall Street Journal reported that China’s cabinet has agreed to lower tariffs for all trading partners on more than 859 types of products including pharmaceuticals, frozen pork and some high-tech components to below the rates that the most-favored nations enjoy.
National Security Concerns Dominate Trump’s Decision
The Trump administration is gravely concerned about China’s drive to unseat the United States as the primary developer and supplier in the fields of high-tech sophisticated products. The implementation of tariffs stems from the Trump administration’s concern that China is leaving the intellectual property of the American companies vulnerable to theft.
Several news agencies reported that China has made unprecedented proposals on a range of issues including the protection of U.S. intellectual properties to resolve the trade disputes. The Asian economic giant has acknowledged that the United States has legitimate and genuine concerns about IP theft, forced technology transfer and cyber hacking by Chinese companies.
Technology Sector to Benefit Most
China is the largest trading partner of the United States. A strong economy in China, the largest market for high-tech products, will give U.S. technology companies a solid boost. Moreover, China plays the role of a low-cost supplier of intermediary products and other inputs to high-tech U.S. industries.
An end to the U.S.-China trade spat 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 should raise the profit margin of U.S. tech giants. Moreover, clinching an agreement with China, which will strictly protect U.S. intellectual properties, will be immensely beneficial for the home-grown tech behemoths.
Out Top Picks
At this stage, it will be lucrative to invest in tech stocks to gain from a possible U.S. – China trade solution. We have been able to narrow down our search to five stocks, which have popped in 2019 and still hold potential to provide further upside. All five stocks currently carry either a Zacks Rank #1 (Strong Buy) or 2 (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 in the past year.
QUALCOMM Inc. QCOM designs, develops, manufactures and markets digital communication products worldwide. It operates through three segments: Qualcomm CDMA Technologies, Qualcomm Technology Licensing, and Qualcomm Strategic Initiatives.
The company has an expected earnings growth rate of 16.4% for the current year (ends September 2020). The Zacks Consensus Estimate for the current year has improved 2.7% over the last 60 days. The Zacks Rank #1 stock has advanced 55.4% in the past year.
Ichor Holdings Ltd. ICHR is engaged in the design, engineering, and manufacture of fluid delivery subsystems and components for semiconductor capital equipment. It primarily offers gas and chemical delivery subsystems that are used in the manufacturing of semiconductor devices.
The company has an expected earnings growth rate of 88.8% for next year. The Zacks Consensus Estimate for next year has improved 14.7% over the last 60 days. The Zacks Rank #1 stock has rallied 106.8% in the past year.
Applied Materials Inc. AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. It operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets.
The company has an expected earnings growth rate of 24% for the current year (ends October 2020). The Zacks Consensus Estimate for the current year has improved 14.6% over the last 60 days. The Zacks Rank #1 stock has surged 86.1% in the past year.
KLA-Tencor Corp. KLAC designs, manufactures and markets process control and yield-management solutions for the semiconductor and related nano-electronics industries worldwide.
The company has an expected earnings growth rate of 16.8% for the current year (ends June 2020). The Zacks Consensus Estimate for the current year has improved 0.5% over the last 60 days. The Zacks Rank #2 stock has climbed 99.3% in the past year.
MACOM Technology Solutions Holdings Inc. MTSI designs and manufactures analog radio frequency, microwave, millimeterwave, and lightwave spectrum products in the United States, China, the Asia Pacific, and internationally.
The company has an expected earnings growth rate of 186.2% for the current year (ends September 2020). The Zacks Consensus Estimate for the current year has improved 47.1% over the last 60 days. The Zacks Rank #2 stock has soared 84.3% in the past year.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.