6 Winning Stock Strategies as Tariff Talks Take Ugly Turn

Wall Street is likely to walk a tightrope with a trade war knocking at the door. This is especially true as tariff talks between the two world’s biggest economies have worsened with Trump threatening to impose additional massive tariffs on Chinese goods unless Beijing reverses course on its own trade actions and does not change its unfair practices.

This time, Trump is seeking a tariff on an additional $400 billion worth of Chinese goods on top of the $50 billion already announced on Jun 15. The latest news came following the tit-for-tat situation by China, which has imposed duties of “the same scale and strength” to that of Trump’s list of Chinese goods targeted for 25% tariff. The Trump administration’s initial list of $34 billion worth of Chinese products, including nuclear reactors, aircraft engines, semiconductors, and a lengthy list of industrial and agricultural machinery, will be subject to duties on Jul 6. The move would intensify the fight with China into an all-out trade war.

Aside the political ills, economic fundamentals remained sound given the raft of upbeat data that shows that the economy is piping hot with unemployment dropping to 3.8% — the lowest level since 2000, increasing consumer spending, rising consumer confidence and a rebound in retail sales.

Further, a massive $1.5-trillion tax cut will create an economic surge, boosting job growth and reflation trade. It will further accelerate earnings, leading to increased dividend and buyback activities. Additionally, the tax repatriation will allow companies to bring offshore cash back home, paving the way for increased mergers and acquisitions. A combination of all these factors coupled with higher oil price bodes well for the stocks.

Given this, we have highlighted some investing ideas that could prove extremely beneficial for investors amid heightened trade tariff talks:

Make Defensive Sectors Your Friend

Investors could rotate into defensive sectors, like real estate, utilities and consumer staples, which generally outperform during periods of low growth and high uncertainty. This is a much better option than holding cash. LaSalle Hotel Properties LHO, UGI Corporation UGI and B&G Foods Inc. BGS seem intriguing picks. LHO has a Zacks Rank #1 (Strong Buy) and risen nearly 41% over the past three months while the other two have a Zacks Rank #2 each and have gained nearly 15% each in the same time period. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bet on Small Caps

Small-cap stocks are less vulnerable to a political issue and could better insulate investors from the ongoing trade war fears. Additionally, these pint-sized stocks tend to outperform on improving economic fundamentals given their less international exposure and higher revenues from the domestic market. Computer Programs and Systems Inc. CPSI could be an attractive choice given its projected earnings growth of 31.07% for this year. The stock has a Zacks Rank #1 and VGM Score of A. It has gained more than 13% over the past three months.  

Add Value to Your Portfolio

Value stocks have proven to be outperformers over the long term and are less susceptible to trending markets. These stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued. These have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts. While there are several options in the space, Town Sports International Holdings Inc. CLUB with a Zacks Rank #1 and a top Value Score of A could be a solid pick. The stock saw its earnings estimate moving up from a loss of 4 cents to earnings of 19 cents for this year over the past three months with an expected growth of 211.76%. It has gained 61.1% in the same period.

Lower Risk with Low Beta Stocks

Low-beta stocks exhibit greater levels of stability and usually lose less when the market is crumbling. Though these have lesser risks and lower returns, the stocks are considered safe and resilient in a choppy market. Comstock Resources Inc. CRK having beta of 0.10 seems a good bet in this category. It has expected earnings growth of 110.26% for this year and has surged 26.43% over the past three months. The stock carries a Zacks Rank #2 and has a VGM Score of A.

Overweight Dividend Stocks

The dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both these world’s — safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The companies that offer dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

While there are several top-ranked options available in the space, The Progressive Corporation PGR, having a strong history of dividend growth, seems to be a good pick. Though the yield is not much high at 1.80%, the stock has five-year historical dividend growth of 24.65% and estimated earnings growth of 59.32%. Progressive Corporation carries a Zacks Rank #2 and has a VGM Score of A. It has added 3% in the past three months.

Invest in Gold Stocks

Gold generally acts as a store of value and hedge against market turmoil. Acting as a leveraged play on the underlying metal prices, metal miners tend to experience more gains than their bullion cousins in a rising metal market. Hence, mining stocks could outperform in the current trade turmoil. As such, Kirkland Lake Gold Ltd KL seems a lucrative pick as it carries a Zacks Rank #2 and a VGM Score of B. The stock has an estimated earnings growth rate of 56.34% for this year and has risen about 32% over the past three months.

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UGI Corporation (UGI) : Free Stock Analysis Report
 
Computer Programs and Systems, Inc. (CPSI) : Free Stock Analysis Report
 
B&G Foods, Inc. (BGS) : Free Stock Analysis Report
 
The Progressive Corporation (PGR) : Free Stock Analysis Report
 
Town Sports International Holdings, Inc. (CLUB) : Free Stock Analysis Report
 
Comstock Resources, Inc. (CRK) : Free Stock Analysis Report
 
LaSalle Hotel Properties (LHO) : Free Stock Analysis Report
 
Kirkland Lake Gold Ltd. (KL) : Free Stock Analysis Report
 
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