U.S.-China Trade Talks to Resume: 5 Winners

A silver lining to the gloomy trade dispute between the United States and China could be seen on Sep 5 as the economic giants announced plans of meeting in the beginning of October. Stocks rallied as investor sentiment got a boost on expectations of a de-escalation in a year-long trade war to end soon.

Indexes rose as the news flooded, boosting technology and financial sectors the most. All three major indexes closed in the green and hit a one-month high. As both countries’ trade officials sit together, settling on terms for trade, investors are hopeful that trade-sensitive stocks will finally rise.

Trade Talks to Restart in October

A sign of relief came as China’s Commerce Ministry announced on Sep 5 that the United States and China will be meeting in “early October” to resume trade talks. Chinese officials made the announcement after a conference call between China’s Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer.

The U.S. trade officials confirmed the news and added that officials from both ends will hold a “serious” discussion to formulate negotiation terms in mid-September. This communication between the United States and China revived investor sentiments, which were dampened at the beginning of the month with both countries slapping additional tariffs on each other.

Earlier, both the United States and China were expected to sit for trade negotiation in September. But as President Trump announced additional 15% tariffs on more than $112 billion Chinese products that include shoes, clothing and household appliances like coffee makers, toasters and microwave, negotiation seemed unlikely.

China in retaliation imposed 5% and 10% additional tariffs on $75-billion U.S. imports, including 5% duties on U.S. crude oil. Further, China went ahead and filed a complaint with the World Trade Organization, reporting that the United States had violated the consensus reached by both the countries in Osaka, Japan on import duties.

Chip & Tech Behemoths Gain

As the news of U.S.-China trade talks hit the media, U.S. stocks rallied hitting one-month high thanks mainly to tech stocks. And why not? Rise in tariffs increases the price of U.S. goods sold to other countries; in this case an additional 15% tariff means that Chinese consumers will have to pay extra for American products. Now, American semiconductor firms depend largely on Chinese firms for the sale of their finished products.

In fact, per a Morgan Stanley strategist, semiconductor and chip stocks generate more than 50% of their revenues from China. Almost 13% of Micron’s revenues in the first six months of this year came from Huawei. But as the trade war escalated and Huawei got blacklisted, chip stocks’ sales were affected, dampening Micron and similar stocks that cater to Huawei Technologies.

Meanwhile, tech bigwigs too were not spared, for example, the iPhone maker’s sales got impacted as tariffs make iPhones more expensive. China is the world’s largest smartphone market and loss of sales due to tariff-induced price hike would cost the company.

Similarly, companies that have exposure to the Chinese economy, be it for sales or purchase, are affected by a hike in tariffs as business or consumers avoid and many times stop buying those products and start looking for alternatives. China’s hike in automobile and automobile parts has burnt stocks like Tesla, General Motors and Ford.

News of economic giants agreeing to meet for trade talks gave investors hope that tariffs may go down and make trade easier. Hence sentiments are boosted driving the rally in stocks.

5 Winning Tech Stocks

We have shortlisted five solid tech stocks that are poised to gain as trade war talks resume. These stocks flaunt a Zacks Rank #1(Strong Buy) or 2 (Buy) and a Growth Score of A or B.

TiVo Corporation TIVO is a publicly traded company that provides digital home entertainment services and solutions. TiVo’s expected earnings growth rate for the current year is 10.7%. The Zacks Consensus Estimate for current-year earnings has improved 12.2% over the past 60 days. TiVo sports a Zacks Rank #1 and has a Growth Score of B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Microsoft Corporation MSFT is a publicly traded technology company. It produces operating systems for computing devices, servers, phones, other intelligent devices and much more. Microsoft’s expected earnings growth rate for the current year is 9.9%. The Zacks Consensus Estimate for current-year earnings has improved 2.4% over the past 60 days. Microsoft has a Zacks Rank #2 and Growth Score of B.

Alphabet Inc. GOOGL is a publicly traded company. It provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, and commerce and hardware products through its subsidiaries.

Alphabet’s expected earnings growth rate for the current year is 13.5%. The Zacks Consensus Estimate for current-year earnings has improved 8% over the past 60 days. Alphabet carries a Zacks Rank #2 and has a Growth Score of B.

Teradyne, Inc. TER is a publicly traded company. It is a supplier of automation equipment for test and industrial applications. Teradyne’s expected earnings growth rate for the current year is 5.5%. The Zacks Consensus Estimate for current-year earnings has improved 5% over the past 60 days. Teradyne carries a Zacks Rank #2 and a Growth Score of B.

Lattice Semiconductor Corporation LSCC is a publicly traded company that designs, develops and markets high performance programmable logic devices and related development system software. Lattice Semiconductor’s expected earnings growth rate for the current year is 10.7%. The Zacks Consensus Estimate for current-year earnings has improved 16.3% over the past 60 days. The company carries a Zacks Rank #2 and has a Growth Score of A.

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Click to get this free report Alphabet Inc. (GOOGL) : Free Stock Analysis Report TiVo Corporation (TIVO) : Free Stock Analysis Report Microsoft Corporation (MSFT) : Free Stock Analysis Report Lattice Semiconductor Corporation (LSCC) : Free Stock Analysis Report Teradyne, Inc. (TER) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research