When it comes to trade policy, President Donald Trump has definitely been aggressive. He has instituted several major tariffs and is engaged in renegotiations of NAFTA.
There are the trade war headlines, but for now, Wall Street does not seem too concerned that there will be a global trade war. Keep in mind that the tariffs still represent a small fraction of the world economy.
But Trump’s approach is still risky. Note that the Federal Reserve considers trade to be the biggest risk to the economy. Some of the potential problems include inflation, disruptions to supply chains and reductions of productivity.
So if the situation deteriorates, what are investors to do? What are some stocks to buy? Let’s take a look at seven:
Trade War Stocks to Buy: AT&T (T)
AT&T (NYSE:T) has been the target of President Trump, whose Justice Department sued to block its merger with Time-Warner. As he has noted in his tweets, he is no fan of CNN (which is owned by Time-Warner).
But of course, the deal has gone through — and it looks like a winner. With it, AT&T gets standout assets like Warner Bros., HBO and Turner Broadcasting. There is also a nice recurring revenue stream from premium subscriptions (primarily from HBO).
What’s more, AT&T has the advantage of a massive footprint in the mobile business, with 93.6 million customers (the company is ranked second in the market). Then there is the business solutions unit and the broadband segment.
Okay, so why is the company protected from a trade war? Well, most of the company’s assets are based in the U.S.
Oh, and something else to keep in mind: The valuation on T stock is attractive, with the forward price-to-earnings ratio of 9X. The company’s dividend yield is also currently over 6%.
Trade War Stocks to Buy: Bank of America (BAC)
Yes, Bank of America (NYSE:BAC) is mostly about … America. In fact, one of the criticisms leveled against it is that it is not global.
But of course, if the trade tensions continue to escalate, then the insularity of BAC is likely to turn out to be a nice positive.
Although, regardless of what may happen, BAC stock does look like a good value right now. With interest rates rising — and deposit rates staying at low levels — the company has been able to generate substantial profits. In the latest quarter, net income jumped by 33% to $6.8 billion.
Yet it seems like a good bet that the momentum will continue. The Federal Reserve has indicated there will be two rate increases this year and another three in 2019.
Finally, BAC stock is trading at cheap levels. Note that the forward-price to earnings ratio is only at 11X. Management is also focused on shareholder value, as the plan is to return $25 billion in buybacks and dividends in the next 12 months.
Trade War Stocks to Buy: Caesars Entertainment (CZR)
The American casino business is likely to have minimal impact from a trade war. Yet you still need to be selective. After all, operators like Wynn Resorts (NASDAQ:WYNN) have extensive footprints in China.
Then which one should you consider? An interesting casino is Caesars Entertainment (NASDAQ:CZR). While the company has had its share of challenges, it looks like management has been able to get things back on track.
It’s important to keep in mind that CZR also looks nicely positioned to benefit from legalized sports gambling (the Supreme Court recently handed down a favorable decision on this activity). First of all, the company has been investing heavily in technologies. And next, it has 15 casinos that are in geographies that should be ideal for sports gambling, according to Height Capital Markets analyst Stefanie Miller.
Trade War Stocks to Buy: Nokia (NOK)
It has been a awful struggle for Nokia (NYSE:NOK). For the past 15 years, the average annual return was -2.2%. However, a trade war may help get the company back into gear.
How so? Well, Nokia has transformed itself into one of the world’s largest communications infrastructure operators.
Now there are two key growth drivers. One is the Internet of Things (IoT), which involves connected devices. The market has wide applications, such as for industrial systems, wearables and smart appliances.
Next, NOK is poised to benefit from the rollouts of next-generation 5G networks. These projects are usually large and take several years to complete.
5G networks are also considered key for national security, according to Trump. So this should play well for NOK versus its main rival, Huawei Technologies, which is based in China. In other words, Nokia is likely to face much less competition when bidding for new business in the U.S.
Trade War Stocks To Buy: Nucor (NUE)
A direct beneficiary of the trade tensions is Nucor (NYSE:NUE) because of the 25% tariffs on steel imports. And yes, the impact has been significant. Just look at the Q2 results. Revenues jumped by 25% to $6.461 billion and earnings soared by over 100% to $2.07 per share.
Might the tariffs eventually go away? Yes. But for NUE, the company has put out strong guidance.
The company is also competitive even without the protection. NUE uses electric arc furnaces, which are more efficient than blast furnaces. The company has also been investing aggressively in modernizing its infrastructure and buying rivals.
Finally, NUE has a proven history of execution. Since 1966, the company has posted a profit every year except one.
Trade War Stocks to Buy: Avalara (AVLR)
The IPO market can be a good place to find stocks that could be resistant to the impact of a trade war. Some of the reasons include: the companies tend to get large amounts of their business from the U.S. and they are usually focused on major growth opportunities.
So what would be an example of this? One is Avalara (NYSE:AVLR), which operates a platform that makes it easy and efficient to track, file and pay local and state taxes.
In terms of growth, it has been steady. In the latest quarter, revenues rose by 25% to $63.7 million. Nearly $60 million of the revenues came from recurring sources, such as subscriptions and returns.
But AVLR is really in the early innings of the opportunity. According to the company’s own research, the size of the market in the U.S. is about $8 billion.
Trade War Stocks To Buy: SPDR Gold Shares Fund (GLD)
So far, the trade actions are still mild. But if there is a full-blown trade war, then there could be a recession — or even worse.
Consider the 1930s. As world growth started to falter, many countries increased their tariffs to protect their home-grown industries but also to bolster revenues to deal with rising deficits. Unfortunately, these actions essentially helped facilitate a world-wide depression.
Granted, this does seem unlikely nowadays, but there could still be pressure on growth. In such an environment, investors will like buy up more gold, as this investment has been a safe haven in times of peril and uncertainty.
And a way to get exposure to gold is SPDR Gold Shares Fund (NYSEARCA:GLD). This is an ETF (exchange-traded fund) that holds gold bars. In all, the assets are about $29.5 billion and the expense ratio is a reasonable 0.4%.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.