This time it’s different. We’ve all heard this phrase before, often in a condescending context. Typically, market forecasters who got something wrong earlier will use it to double down on their initial prognostication. But when it comes to picking which stocks to sell amid the re-escalated U.S.-China trade war, this situation has no parallel.
Obviously, the biggest wildcard in this economic conflict is U.S. President Donald Trump. Right when circumstances appeared favorable for a trade resolution, the former real-estate mogul had other ideas. In a social media post, he blasted the Chinese for dragging their feet toward the negotiating table. Naturally, the about-face angered China, scuttling scheduled talks and by logical extension, boosting the bearish case for stocks to sell.
But the other critical factor in this dispute is the Chinese response. They no longer appear amused to play the typical diplomatic courtesies. Their rhetoric has taken on a much more nationalistic sentiment. For example, China’s officials referenced deep historical overtones to slight the U.S.
Plus, Trump’s counterpart, Chinese President Xi Jinping, used the term “long march” regarding the trade war. That’s referring to China’s civil war and the ultimate rise of the communist party. Although I’m sure nuances exist, that aggressive tone highlights the importance of recognizing which stocks to sell.
Finally, I wouldn’t get complacent about this trade war. Although agriculture and technology represent the front-facing victims, everyone suffers when the top two economies collide. With that, here are seven stocks to sell amid the second round of the trade war:
Stocks to Sell: Apple (AAPL)
This might seem like an easy one, plucking the lowest of low-hanging fruit. With Apple (NASDAQ:AAPL) seeking new avenues to diversify its business, China offered a viable safety valve. But with heightened tensions, AAPL stock has noticeably suffered. Since the first of May, shares have dropped nearly 15%.
That volatility might cue contrarians to enter the markets. But if you’re among them, I’d continue to hold off. Sure, AAPL stock remains a robust investment. It wasn’t too long ago that the underlying consumer-tech firm became the world’s first trillion-dollar company. However, its search for revenue diversification just took a huge hit with re-intensified tensions.
Like other portable-device manufacturers, Apple must contend with “peak smartphone.” To get around this growing problem, AAPL sought to build out its Services division. But legal challenges now cloud that business.
Therefore, you should play the safe game here and put AAPL on your list of stocks to sell.
Under Armour (UA, UAA)
For quite some time, I’ve urged readers to put Under Armour (NYSE:UA, NYSE:UAA) in their basket of stocks to sell. One of the reasons I didn’t believe in Under Armour stock is the irrational market toward sports sponsorships. The bottom line here is that the broader athletic machinery is paying ridiculous sums of money to adults to play a kid’s game.
Still, that’s the nature of the beast: if you want to play, you have to pay. However, UA stock, when stacked up against sector leaders Nike (NYSE:NKE) and Adidas (OTCMKTS:ADDYY) fares poorly on a financial scale. To win against these titans, Under Armour must hope for a lucky break.
Oh, there’s breaking going on, but not the good kind. We all know from Foot Locker’s (NYSE:FL) dreadful miss in their first-quarter earnings report that the U.S. consumer is hurting. To make ground, Under Armour needs a robust Chinese market. Here, geopolitical tensions threaten to derail everything for UAA stock.
Now we’re going to talk about one of the stocks to sell that hurts me. I like retail giant Walmart (NYSE:WMT). Actually, let me clarify: I don’t like shopping there, but I recognize their investment strength. WMT stock represents a brick-and-mortar retail powerhouse that has proven immune to e-commerce disruption. It also pays a dividend, which usually protects shares from volatility.
But let’s face facts here. Favorable financial metrics supported Walmart during the first round of the trade war. But that situation was only a temporary reprieve. Last September, Walmart’s management team urged the Trump administration to ease diplomatic tensions. At some point, tariffs will force retailers to take drastic measures, including consumer-price hikes.
That’s hugely problematic because of Walmart’s shoppers. These are consumers that cannot absorb a price hike, which is why I’m cautious on WMT stock now.
General Motors (GM)
Amid these escalating tensions, General Motors (NYSE:GM) has two reasons why its equity belongs on a list of stocks to sell. Number one, American cars are junk. Number two, the marketing machinery to sell American cars is equally disappointing. Detroit loves to pander to patriotism and subtle anti-Japanese sentiment to generate sales.
You know what’s more patriotic? Taking pride in your work and rising up to meet a challenge.
Anyways, GM stock does have an ace up its sleeve — or should I say, did. In America, GM brands like Buick have all but died in terms of relevancy. But in China, that’s different. Due to longstanding historical and cultural reasons, the Chinese love American cars.
That will likely change, though, with this heated conflict. You see, GM stock is levered two ways with China: General Motors sell to the Chinese, and they also contract the Chinese to sell GM-branded cars to us. That’s why management was so desperate to seek an exemption from the Trump administration last year.
But with how things are going geopolitically, you can kiss GM stock goodbye.
Earlier this year, Tiffany (NYSE:TIF) seemed like a sound investment among the rather shaky discretionary-spending segment. Although the company’s overall revenue went flat for the holidays, it did have a bright spot: sales growth in mainland China, which jumped by double digits in the last two months of 2018. It’s a formula that many distinguished organizations have failed to master, separating TIF stock from the competition.
But now, the trade war urges stakeholders to toss it into their portfolio of stocks to sell. The pivotal reason is that Beijing is determined to play the long game against Washington. This is the reason why the Chinese government’s aforementioned aggressive rhetoric is so worrying: they mean it.
Unlike the U.S. and most western countries, China is largely racially and ethnically homogenous. When most of its citizens are Han Chinese, you have fewer opportunities for internal strife. Therefore, it’s easier for Beijing to appeal to nationalistic sentiment. Demographically, everyone is on the same page.
And let’s be real: boycotting frivolities like jewelry is easy. Thus, I’d steer clear of TIF stock for now.
I’ve mostly focused on American companies for my list of stocks to sell. But that doesn’t mean I’m letting Chinese stocks off the hook. The knife cuts both ways. As such, most publicly traded Chinese firms are suspect. However, I’ll sum up my reservations for the region by addressing Alibaba (NYSE:BABA), China’s flagship corporate entity.
China is a country built on intellectual theft. China’s scientific infrastructure is based on possibly record-breaking fraud and intellectual theft. According to Business Insider, “a mind-blowing number of counterfeit goods come from China.” Even their art industry is buoyed by a shocking level of corruption!
So is it any surprise that for years, analysts questioned BABA stock?
While I’m concerned about the coming pain stateside, the Chinese better watch out for their own good. Angering Trump only makes him want to double, triple, heck even quadruple down on his initial policy. Eventually, BABA stock can take a long march out of the markets if the Chinese overplay their hand.
Please forgive me for my thoughts on GM if you drive or love American cars. I’m just telling it like it is. But if you still have some bitter lingering emotions, allow me to soothe them with my take on NIO (NYSE:NIO). Among automotive stocks to sell, this one takes the cake.
NIO stock faces so many problems it’s difficult to know where to start. Primarily, I’d say that it’s incredibly difficult to break into the automotive market. For example, it took Toyota (NYSE:TM) decades of long-term strategizing to break into and later dominate the U.S. market.
That segues into my second point, which is that NIO has zero chance of breaking into the U.S. market with this trade war. Seriously, Japanese automakers have invested billions into American jobs and infrastructures, yet Trump still cries foul. If that’s the stance the administration takes on allies, imagine being an adversary?
Finally, NIO has a credibility problem. Chinese manufacturing has a poor reputation that really hasn’t improved much today. If Tesla (NASDAQ:TSLA) can’t build a car that’s consistently reliable, can Nio do better?
I thought not, which is why I’m steering clear of NIO stock despite its discount.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.