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US-China Could Head for Military Conflict: 4 Stocks to Buy

President Donald Trump's move to put sanctions on China's military in September (to teach both China and Russia a lesson for their military transactions) hasn't been taken lightly by Beijing.

Earlier this week, United States sent two warships through Taiwan Strait, a step that indicates the country's support to democratic Taiwan. The move angered China, which admittedly had no plans to give up Taiwan or its territory in the disputed South China Sea. Beijing claims the self-ruled Taiwan under its command.

China's stock markets climbed following their defense minister's statement, with Shanghai Composite Index (SCI) and Hang Seng Index (HSI) opening 7 and 37 points higher, respectively, on Oct 26 than the previous day's closing price. However, the news finally failed to cheer the markets, as SCI and HSI closed 20 and 212 points lower, respectively, on the same day.

China's recent spat over U.S. sanctions could lead to possible military action between the two largest economies in the world, making it prudent to include some defense stocks in your portfolio at present.

U.S. Sanctions on China for Purchasing Russian Missiles

According to a Reuters report, China purchased 10 SU-35 combat aircraft in 2017 and S-400 missile system-related equipment in 2018 from Russia. This is the trigger for United States' decision to put sanctions on the country's military.

The S-400 surface-to-air missile system, developed by Almaz Central Design Bureau of Russia, can identify, track and destroy unmanned aerial vehicles, aircraft, cruise and ballistic missiles over a range of 402 kilometers. United States doesn't possess any defense systems to destroy Russia's S-400 missiles yet.

Trump pulled the United States out of a 1987 nuclear weapons pact with Russia last week because Russia and China were developing banned weapons that posed a threat to the former.

The Asian country's unwavering resolution to put pressure on the Unites States despite the ongoing trade war, which was affecting its own economy, and its refusal to give U.S. companies an equal chance in its markets reflects the country's protectionist attitude. In addition, China's purchase of Russian military equipment indicates the Asian nation is unlikely to consider a diplomatic resolve with the United States anytime soon.

Since the commencement of U.S.-China trade war, Chinese indexes have been taking the constant blow of several U.S. tariffs on Chinese goods. HSI and SCI have lost 3363 and 143 points, respectively, since the trade conflict started on Jul 6.

Defense Stocks to Buy

As U.S.-China conflict on military may be in the cards, we have hand-picked a few defense stocks for your consideration.

AeroVironment, Inc.AVAV provides advanced technological defense products, systems and services to government agencies, consumers and businesses. The company carries a Zacks Rank #1 (Strong Buy) and its earnings per share (EPS) is expected to grow 25.9% for the current year. AeroVironment's shares have gained 58.4% since the beginning of 2018.

The Boeing CompanyBA manufactures commercial jetliners and defense, space and security systems and is the largest aerospace company in the world. The aerospace manufacturer's shares have climbed 23.4% year to date and it bears a Zacks Rank #2 (Buy). The company's EPS is estimated to grow 21% this year.

You can see the complete list of today's Zacks #1 Rank stocks here .

Transdigm Group IncorporatedTDG supplies highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. The company carries a Zacks Rank #2 and its shares have gained 19.4% so far this year. Transdigm Group's EPS for 2018 is expected to increase 42.5%.

L3 Technologies Inc.LLL provides communication and electronic systems and products used in military and commercial platforms. The company bears a Zacks Rank #2 and its EPS for the current year is estimated to grow 22.2%. L3's shares have gained 3.3% year to date.

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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.


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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