Shortly after Donald Trump's upset victory in the 2016 presidential election, a new investment strategy swept over Wall Street and helped send stocks higher. Dubbed the "Trump Trade" by many, investors pumped cash into the industries that stood to benefit from the new president's campaign promises. But now, with a trade war between the U.S. and China looming, it is time for a new version of this strategy.
The original Trump Trade was rooted in a belief that the businessman turned reality TV star could continue his streak of deal making in his new political initiatives.
The strategy worked with a few basic assumptions: building a wall on the southern border and leveraging our import power to pay for it would probably hurt Mexican industry, rolling back environment regulations would make life for energy companies easier, and streamlining the approval process would benefit the biotech industry.
Overall, the stock market has responded well to the Trump presidency. Major indexes have soared, and although specific elements of the Trump Trade have had mixed results, a continued economic recovery-both domestically and abroad-has inspired strong confidence among investors.
But trade tensions between the U.S. and China have heightened significantly over the past few weeks, and as investors grapple with the possibility of tit-for-tat tariffs affecting billions of dollars' worth of goods, it is clear that a new strategy needs to emerge.
The New Trump Trade?
Trade war speculation got several steps closer to reality this week after the White House released a list of Chinese imports that it plans to hit with new tariffs. Sectors impacted by the crackdown on what Trump believes to be unfair trade practices would include IT and communication technology, robotics, and aerospace-among others.
Chinese regulators responded quickly, releasing their own list of U.S. products to be targeted with 25% import charges on Wednesday. This list includes agricultural products, such as soybeans, corn, and meat; vehicles; and manufacturing supplies like chemicals and lubricants. Many experts believe this list is political in nature and was designed to create backlash from Trump's core support base.
Things got even more cautious on Friday after new reports suggested that Trump instructed the U.S. Trade Representative to consider tariffs on an additional $100 billion of Chinese goods. All of these tariffs are part of ongoing negotiations, but things are clearly escalating-and investors now, more than ever, need a strategy that limits exposure to companies tied up in this trade mess.
Luckily, it is still possible to build a diverse portfolio of trade-war-safe stocks by focusing on smaller domestic tech firms, U.S. retailers, and strong telecom companies. Here's a closer look at three of our best options right now.
1. Paycom Software, Inc. (PAYC)
Paycom Software is a provider of a cloud-based human capital management software solution delivered as Software-as-a-Service. This type of tech pick will likely fare well amid trade war volatility, and as one of the fastest-growing public companies in the world, Paycom is looking uniquely interesting right now.
Based on our latest consensus estimates, we expect the company to witness EPS growth of 89% and revenue growth of 26% in its current fiscal year. Looking further ahead, Paycom is projected to improve its bottom line at an annualized rate of nearly 25% over the next three to five years.
Analyst sentiment for Paycom is also noticeably strong. Within the past 60 days, the company has witnessed 11 revisions to its full-year EPS estimates, with 100% agreement to the upside. This positive revision activity has earned the stock a Zacks Rank #1 (Strong Buy). Shares are trading at an expensive 44x forward 12-month earnings, but its PEG ratio of 1.8 is actually quite attractive.
2. Burlington Stores, Inc. (BURL)
Fashion-based retail is another area of the U.S. economy that should make it out of trade war issues relatively unscathed, especially considering the preliminary tariff lists we have seen so far. With that said, investors should definitely check out Burlington Stores right now.
The company has witnessed strong comps growth recently, and total revenues are expected to climb nearly 11% in the current quarter. That should be underscored by impressive earnings expansion, with the latest Zacks Consensus Estimate projecting EPS growth of 48% for the period.
Burlington has also witnessed positive estimate revisions, lifting our consensus estimate for its full-year earnings by 46 cents over the past two months and helping the stock receive a Zacks Rank #2 (Buy). BURL's Forward P/E of 23.8 is a slight premium, but a PEG of 1.3 and a P/S of 1.5 keep its valuation in check.
3. United States Cellular Corporation (USM)
U.S. Cellular is a regional wireless carrier and operates the fifth-largest mobile network in the United States. Domestic telecom companies should also be relatively unaffected by trade talks with China, and U.S. Cellular looks like one of our better options in this space at the moment.
Analysts are starting to warm up to USM, with the stock witnessed four positive revisions for its current-year EPS estimates and three positive revisions for its next-year estimates within the past 60 days. The company is now expected to witness earnings growth of 21% and 30%, respectively, in these periods.
USM is currently sporting a Zacks Rank #1 (Strong Buy). Shares are trading with decent multiples in key categories for telecoms, evidenced by the stock's P/S of 0.9 and P/B of 0.9.
Want more market analysis from this author? Make sure to follow @ Ryan_McQueeneyon Twitter!
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.