The Strategist

BofA names top 10 companies to invest in during the trade war

05/21/2019 - 10:56

Wall Street analysts are still trying to find firms capable of withstanding the US-China trade tensions. Meanwhile, Bank of America has conducted a more rigorous selection process.

Mike Mozart
Mike Mozart
Bank experts made a list of 10 companies that, even in the worst scenario, will be able to survive a full-scale trade war between the two economic superpowers. BofA analysts explain their choice by saying that these enterprises do not distribute goods and services abroad, and also have relatively low sensitivity to a slowdown in US economic growth.

Bank of America's selected companies include the following: BB&T Corporation, HCP Inc., SVB Financial Group, Duke Realty Corp., Regency Centers Corp., FirstEnergy Corp., Kohl's Corp., Carmax Inc., Boston Properties Inc., and Lennar Corp.,

The trade war between the United States and China has intensified after the Trump administration raised fees for Chinese products worth $ 200 billion from 10% to 25%. In response, Chinese officials announced introduction of import duties on US goods in the amount of $ 60 billion, while their size can also reach 25%.

The weighted average level of US trade duty, equal to 4.2%, is already higher today than any other member of the Big Seven, twice as high as Germany, France and Great Britain, and also higher than that of Russia and China, according to Times.

The bank's analysts have chosen companies focused on the domestic market with strong fundamentals and a negative beta coefficient, which indicates a lower sensitivity of these firms to changes in GDP. The top 10 includes enterprises operating in sectors traditionally considered “safe haven” during market uncertainties: real estate, consumer goods, finance and utilities.

Carmax, the largest retailer of used cars in the United States, has increased its value by almost 22% since the beginning of the year. For comparison, over the same period, the S&P 500 index grew by 13.7%. In March, the company shared its financial results with market participants, which exceeded all forecasts. Carmax's net sales were up 5.7% and earnings per share increased 68% year-on-year.

SVB Financial, another company from the Bank of America list, added more than 21% in 2019. The company's reporting for the first quarter also exceeded analysts' expectations. The loan portfolio grew by almost 20%, and the return on assets rose twice higher than the industry standard, according to Motley Fool.

Goldman Sachs analysts recommend investors to focus on service companies with a strong business, which, in their opinion, are less exposed to the risks associated with the trade war, and can protect investors from the volatility caused by it. Goldman experts believe that the probability of a trade war, in which duties will be imposed on the remaining Chinese goods in the amount of $ 300 billion, is 30%.