Just when the key indexes ended three straight trading days in the green and market watchers thought that chances of a trade war have finally dimmed after a fearful month, the tables turned. Investors encountered new shockwaves late on Thursday when President Donald Trump announced a new set of $100 billion worth of tariffs against China. Following this announcement, market futures plummeted after the bell.
Renewed fears of a trade war may find investors scurrying toward safe-haven sectors, which have already emerged as preferred investments.
One of the most-popular, safe-haven sectors is utilities. This sector comprises companies that provide telephone, gas, water and electricity services. In this context, investors looking for stable dividend and interest income can invest in utilities.
Tariffs on China Could Add Up to $153 Billion
On Thursday night, the President called China’s decision an “unfair retaliation,” and instructed the United States Trade Representative (USTR) to decide whether new tariffs of $100 billion should be imposed on Chinese goods. Trump added that these additional tariffs will be suitable per Section 301 of the Trade Act of 1974 and that the products will be selected accordingly.
On Tuesday, the White House had announced new tariffs of $50 billion on more than 1,300 new Chinese products. Tariffs of 25% will be imposed on products ranging from aircraft batteries and parts to medical devices and flat-screen televisions. U.S.-China tensions started when Trump initially announced tariffs of around $3 billion on steel and aluminum imports from China in March.
The reason for this war-like situation is China’s staggering $375-billion trade surplus with the United States in 2017, which the Trump administration is looking to reduce by at least $100 billion. Total U.S. tariffs on China now add up to around $153 billion. Following the United States’ tariff announcements, China also retaliated with similar moves.
China Set to “Fight Back”
China is clearly in no mood to sit back when the United States is gearing up to impose new tariffs on its imports. In fact, a spokesperson for China’s Ministry of Commerce said that the country does not want to enter into a trade war with the United States At the same time, China is “not afraid to fight a trade war.”
He added that in case the United States sticks to its “protectionist trade practices,” China will not refrain from fighting back and instead will respond with “new comprehensive measures.”
Most recently, China declared that it will levy tariffs on around 106 U.S. productsincluding soybeans, aircraft, chemicals and automobiles, with a total trading value of over $50 billion. Following the announcement of Trump’s steel and aluminum tariffs, China imposed tariffs of $3 billion on 128 American goods, with 15% duty levied on 120 products and 25% duty on other eight goods.
China’s latest tariffs will definitely affect the U.S. economy as the exports to China were significant at $130 billion in 2017. China is the largest importer of soybeans from the United States, which was around $14 billion last year. Additionally, China’s import of aircraft equipment, oil seeds and oleaginous fruits, and motor vehicles was $16.3 billion, $12.4 billion and $10.6 billion, respectively in 2017.
Buy These 5 Utility Stocks
While the recent trade war between the United States and China refuses to find any closure, investors should clearly look for defensive sectors. Utility stocks are good options in this regard. The Utilities Select Sector SPDR (XLU) has advanced 1.8% in a month, becoming one of the few key S&P 500 sectors to end in the green over this period.
We have selected five stocks that are expected to emerge unscathed from the war zone. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Utilities to Shelter Your Portfolio From Trade War Fears: Shenandoah Telecommunications Company (SHEN)
Shenandoah Telecommunications Company (NASDAQ:SHEN) is a provider of regulated and unregulated telecommunications services.
This Virginia-based company has a Zacks Rank #1. The expected earnings growth rate for the current year is 76.92%. The Zacks Consensus Estimate for the current year has improved 24.3% over the last 30 days. Shenandoah Telecommunications has gained 7.3% in the last month.
Utilities to Shelter Your Portfolio From Trade War Fears: AES Corp (AES)
AES Corp (NYSE:AES) is a diversified power generation and utility company.
This Virginia-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 10.65%. The Zacks Consensus Estimate for the current year has improved 2.7% over the last 30 days. AES has gained 5.2% in a month’s time.
Utilities to Shelter Your Portfolio From Trade War Fears: Global Water Resources Inc (GWRS)
Global Water Resources Inc (NASDAQ:GWRS) is a water resource management company.
This Arizona-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 16.67%. Over the last 30 days, the Zacks Consensus Estimate for the current year has improved 16.7%. Global Water Resources has gained 5.6% in one month.
Utilities to Shelter Your Portfolio From Trade War Fears: CenterPoint Energy, Inc. (CNP)
CenterPoint Energy, Inc. (NYSE:CNP) is a public utility holding company in the United States based out of Texas.
This Zacks Rank #2 company has an expected earnings growth rate of 13.14% for the current year. The Zacks Consensus Estimate for the current year has improved 0.7% over the last 30 days. CenterPoint Energy has gained 1.9% in a month’s time.
Utilities to Shelter Your Portfolio From Trade War Fears: ONEOK, Inc. (OKE)
ONEOK, Inc. (NYSE:OKE) is a diversified energy company involved in oil and gas production.
This Oklahoma-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 46.24%. The Zacks Consensus Estimate for the current year has improved 3.6% over the last 30 days. ONEOK has gained 0.7% in a month.
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.