U.S. Markets Ignore Tariff Worries: 5 Top-Ranked Picks

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Wall Street shrugged off early losses on Sep 18 to close in the green as investors chose to ignore trade tensions. Stocks moved north after the latest tariffs from the United States and China were less harmful than expected.  

Consumer discretionary and industrials stocks emerged as the leading performers. Tech shares also gained after the likes of Apple, Inc. AAPL gained a reprieve from Trump's latest tariffs.

The day's trading indicates that investors are continuing to focus on the robust economy and strong earnings, which have been the driving force behind markets for some time now. With the market rally set to continue, ignoring intermittent jitters, it makes sense to invest in stocks that have made strong gains year to date and bear strong fundamentals.

Tariff Barbs Less Harmful Than Expected

On Sep 17, the Trump administration announced that it was imposing a 10% tariff on Chinese imports worth $200 billion, effective Sep 24. From Jan 1, 2019, the rate imposed will rise to 25%. If China decides to retaliate, the administration will impose "tariffs on approximately $267 billion of additional imports." (Read: Trump Slaps New Tariffs on Chinese Goods: 5 Small-Cap Picks)

On Sep 18, China retaliated by imposing a 10% tariff on U.S. goods worth $60 billion, also effective Sep 24. The measure targets more than 5,000 U.S. products. However, the rate levied is much lower than the 20-25% band that was discussed earlier.

Investors took the view that things could have been far worse and this is possibly why stocks rallied. The Dow gained 0.7% to close in the black for the fifth session out of six. The S&P 500 gained 0.5%, ending 0.5% lower than a record high.

Additionally, the United States has also chosen to exclude nearly 300 items from an earlier list of goods, which would attract such duties. This includes smartwatches from Apple and Fitbit Inc FIT . Consequently, shares of Apple and Fitbit gained 0.2% and 6.4%, respectively. This helped the Nasdaq gain 0.8%.

Investors Choose to Focus on Economy, Earnings 

Besides the fact that tariff barbs were less strong than expected, gains from Asian markets also boosted investor sentiment. With the Shanghai Composite gaining around 2% and the Nikkei advancing nearly 1.4% overnight, major indexes across the world followed suit. Gains for Asian stocks and long-term U.S. Treasury yields tracked four-month highs.

Gains made by industrials and consumer-discretionary shares, sectors which perform well when the economy is strong, also indicate the priorities of investors. Bullish economic data and strong corporate earnings have been powering market gains for some time now.

Market watchers think investors are choosing to focus on these factors. Analysts also think that the trade war's impact on global growth may not be as detrimental as earlier expected. These also believe that the dispute will be settled amicably before any perceptible impact is felt by the global markets.

Our Choices

Investors have chosen to shrug off the latest exchange between the United States and China on trade issues. The latest round of tariffs has also been less strong than earlier expected. Meanwhile, market watchers are coming around to the view that trade tensions will only have a limited impact on global growth.

With investors choosing to focus on a strong U.S. economy and bullish earnings, the market rally is likely to continue. Investing in stocks that have gained strongly over the year so far makes for a smart choice. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and VGM Score of A. You can see  the complete list of today's Zacks #1 Rank stocks here.

Unisys Corporation UIS is an IT firm, specializing in securing client operations, increasing efficiency of data centers, enhancing support to their end users and constituents, and modernizing their enterprise applications.

Unisys' expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 2.1% over the last 30 days. The stock has gained more than 100% year to date.

DSW Inc. DSW is a leading branded footwear and accessories retailer in the United States.

DSW's projected growth rate for the current year is 14.5%. The Zacks Consensus Estimate for the current year has improved 7.5% over the last 30 days. The stock has gained 45.5% year to date.

Continental Building Products, Inc. CBPX is a manufacturer of gypsum wallboard, joint compound and complementary finishing products.

Continental Building Products' projected growth rate for the current year is 52.9%. The Zacks Consensus Estimate for the current year has improved by 1.8% over the last 30 days. The stock has gained 36.2% year to date.

UFP Technologies, Inc. UFPT is a designer and convertor of foams, composites, plastics and natural fiber materials for the industrial and consumer markets in the United States.

UFP Technologies' expected earnings growth for the current year is 56%. The Zacks Consensus Estimate for the current year has improved by 4.4% over the last 30 days. The stock has gained 31.3% year to date.

Rent-A-Center, Inc. RCII is the largest rent-to-own operator in the United States offering durable goods such as consumer electronics, appliances, computers, furniture and accessories.

Rent-A-Center's expected earnings growth for the current year is more than 100%.The Zacks Consensus Estimate for the current year has improved by 8.1% over the last 30 days. The stock has gained 30.8% year to date.

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Unisys Corporation (UIS): Free Stock Analysis Report

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Apple Inc. (AAPL): Free Stock Analysis Report

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Fitbit, Inc. (FIT): Free Stock Analysis Report

Rent-A-Center, Inc. (RCII): Free Stock Analysis Report

DSW Inc. (DSW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: UIS , CBPX , AAPL , UFPT , FIT

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