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3 'Strong Buy' Stocks to Withstand A Trade War

President Trump's announcement that the US is about to impose 25% tariffs on steel imports and 10% on aluminum imports ricocheted through the global markets. Now investors are worried that Europe and Asia will decide to retaliate. Already a senior Chinese diplomat has stated “China does not want to fight a trade war with the United States but we absolutely will not sit by and watch as China’s interests are damaged.” For the week, the S&P 500 closed down 2%, nearly twice as much as any decline in 2017.

However Fundstrat founder and head of research Tom Lee believes the market is overreacting. He says: “We are buyers of this pullback. The equity environment is more challenging than 2017, and as noted above, is characterized by greater skepticism of Washington (deficits, tax cuts, etc), synchronized normalization by central banks and inflation increases—however, we view these as healthy transitions and supportive of earnings growth.”

Lee recommends that investors track stocks with a low trade war exposure. He highlights his top 20 stocks by calculating each company’s overseas sourcing as a percentage of cost of goods sold and their exports as a percentage of sales. If the sum of the two percentages came to under 40%, he concludes that the company has a low trade war exposure.

We used TipRanks to identify the 3 top stocks from this list. The 3 stocks highlighted below all share a ‘Strong Buy’ analyst consensus rating based on the last three months. The best part is that this consensus only includes ratings from the Street’s best-performing analysts. We can also track the average analyst price target to get a better idea of each stock’s upside potential in the coming months.

So with this in mind, let’s take a closer look at these 3 stock picks now:

Boeing (BA)

One of the world’s largest aerospace companies, shares in Boeing slipped on news of the impending tariff. As a result, BA ended the week down 3.4%. Investors are fretting that the tariff will cause raw material costs to rise and orders (especially from China) to drop. But according to Fundstrat the market is overreacting. The firm has calculated that Boeing actually has a trade war exposure of just 35.2%.

And another firm, JP Morgan, has now chimed in to reassure investors. Top JP Morgan analyst Seth Seifman says that the cost increase for aluminum, a key component in plane construction, should ultimately prove insignificant for the company. “The impact should be small, however, as ... aluminum prices increased by more than 30% last year (significantly more than the proposed tariff), with little to no discernible effect on Boeing and most major suppliers.”

He added, “Lots of cost variables move around all the time, and so a low-single-digit change does not seem like a showstopper.” If anything, according to Seifman, the costs would be passed on and ultimately absorbed by the consumer. For those investors concerned about a retaliation from China hurting Boeing, Seifman believes that China would be unlikely to move beyond imposing similar tariffs and cancel its order of 300 planes from Boeing.

We can see from TipRanks that over the last three months, BA has received 11 top analyst “buy” ratings, with three analysts on the sidelines. With a $398 average price target, upside potential stands at 15%. But note that this is just the average. Five-star Cowen & Co analyst Cai Rumohr is much more bullish on BA than average. He says: “Boeing remains our top pick for a $415 price target [20% upside].”

Alexion Pharmaceuticals (ALXN)

Alexion is a US pharma company focused on developing and delivering therapies for patients with rare disorders. Right now the company is best known for its development of Soliris, a drug used to treat rare blood disorders, but it has recently launched two further products that are worth keeping a close eye on. Strensiq and Kanuma already account for >10% of FY sales, and this number is accelerating. So it is no surprise that five-star Oppenheimer analyst Hartaj Singh has just selected ALXN as his top stock idea for February-March.

Singh is confident that Alexion can explode 48% from just $118 to $175. He says the stock’s risk/reward profile is oriented to the upside and concludes: “With a robust rare disease platform, a slowing yet cash-generating asset in Soliris, and two newly launched products in Strensiq and Kanuma, we believe that it is not a question of if, but rather when, the shares positively re-rate.”

Overall, Alexion has scored 10 buy ratings versus only one hold rating from best-performing analysts in the past three months. These 11 analysts predict that Alexion will rise 33% to reach $157.

Pioneer Natural (PXD)

Texas-based Pioneer Natural is now a pure-play on one of the world’s most lucrative oil fields, the Permian Basin. The company has just announced that it is divesting all non-Permian assets including 70,000 acres in the prime Eagle Ford Shale in an approx $1 billion asset sale.

This ‘strategic realignment’ makes sense to B.Riley FBR analyst Rehan Rashid. “We believe this platform and the substantial resource base it has to offer are simply not replicable. We reiterate our Buy rating and $305 price target and add PXD to the B. Riley FBR Alpha Generator list” comments Rashid. He has a $305 price target on PXD, which comes out far above the consensus price target of $220, and suggests huge upside potential of 80%. This is based on his calculation of significant upside potential to the Permian resource of 20.0 billion barrels of oil or equivalent (BOE).

While Rashid may have a unique projection on the size of the resource, he isn’t alone in his bullish stance on PXD. Top Citi analyst Robert Morris has also just added PXD to the firm’s US Focus List while ramping up his price target on the stock from $215 to $250. For Morris, pullbacks spell buying opportunities due to the company’s ‘deep high-return inventory,’ ‘strong balance sheet,’ and relatively low valuation compared to Permian peers.

Over the last three months, TipRanks shows that Pioneer has received 3 buy ratings and 1 hold ratings from top analysts. Given that the stock is now at $169, analysts are projecting (on average) big upside potential of 28%.

Our database covers over 5,000 stocks. Find your own “Strong Buy” stocks in the sector that interests you the most. Go to the Nasdaq Smart Portfolio stock screener now.

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


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

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