Trade Truce Doesn’t Make China Stocks a Buy

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

After months of negotiations and setbacks, an initial trade deal with China is close. That’s good news. When it happens, I’ll cheer.

Advertisement.

But even if there’s a breakthrough this weekend, it probably won’t play out the way a lot of investors hope. The concessions both sides are willing to make simply don’t add up to a win for U.S. exporters.

I’m not buying the stocks that do a lot of business in China. And I’m not buying the Chinese stocks that sell on either side of the Pacific Ocean, either.

The play here is different. Start with the terms that are actually on the table.

Advertisement.

China wants to buy U.S. farm products. Food prices have gotten out of control, soaring 19 percent over the past year and forcing the government to tap its pork reserves to keep the people happy.

However, Beijing also wants to save face, so if it makes a concession, it needs Washington to give something up, too. That means lowering the trade walls.

Any rollback on U.S. tariffs won’t make it any easier for U.S. companies to sell their products in China. Their competitive landscape isn’t improving. So why are those stocks breaking records?

The China Scenario

Advertisement.

The S&P 500 constituent with the biggest exposure to China is Wynn Resorts Ltd. (NASDAQ:WYNN), which does a lot of business in Macao.

The stock is up 12 percent this week amid the general buzz around trade and is now only 13 percent from a 52-week high. But it’s unclear to me how reducing tariffs on Chinese exporters translates into more money flowing into Wynn casinos.

Chinese factories will presumably run a little harder to keep shipping orders to U.S. customers. The boss’s decision to gamble in a U.S. casino or go elsewhere doesn’t change.

To be fair, I was never convinced that China was ever a problem for Wynn or the reason the stock plunged last year. Management turmoil was a much bigger factor.

But because the stock does so much business in China, people naturally took a look at the table of stocks ranked by revenue in the country and assumed that the trade war was to blame.

Advertisement.

It wasn’t. A trade truce won’t help the company. I suspect this bounce is premature.

On the other hand, semiconductor manufacturers like Skyworks Solutions Inc. (NASDAQ:SWKS) truly do have a stake in the trade war, which is why they fell so hard last year.

As far as I know, there’s no proposal on the table to protect these companies and their markets. Instead, China is busy ripping out as much U.S. technology as it can find and replacing it with domestic alternatives.

That business is not coming back in a trade truce. And I would not buy these stocks either, especially now that they’ve already priced in a complete reversion to a free trade world.

Skyworks is practically at a 52-week high as it is. Any disappointment on trade will send it right back down.

So, what do I like? I like U.S. retailers who once again can sell Chinese products to U.S. consumers without paying a surcharge for the privilege. If tariffs roll back, these companies will keep the cash.

Advertisement.

Start with Walmart Inc. (NYSE:WMT) and work down. These stocks lost a year while management retooled their supply lines. Now they’re more nimble than ever.

These are the kinds of stocks that dominate my Value Authority portfolio: insulated from real global shocks but beaten down by confused investor logic. When logic improves, the stocks soar.

And in a world of confused headlines and sudden changes, that clarity is precious… especially when you can buy it at a discount.

Join me for the Orlando MoneyShow, February 6-8, 2020, at the Omni Orlando Resort at ChampionsGate. I will be speaking Friday, Feb. 7, 3:00 p.m. about The Stealth Value Investor: Ten Amazing Dividend Yield Plays Flying Under the Radar. On Saturday, Feb. 8, I will talk at 5:15 a.m. about Identifying the Real Future GameChanger Stocks: Ten Companies Positioned to Double – Even if the Bears Take Over Wall Street. Other investment experts who will be speaking include retirement and estate planning specialist Bob Carlson, income and options expert Bryan Perry and world-traveling, free-market economist Mark Skousen, who leads the Forecasts & Strategies newsletter. Register by clicking here or call 1-800-970-4355 and mention my priority code of 049252.

share on:

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE


img
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle
LEARN MORE HERE

DayTradeSPY

DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops
LEARN MORE HERE