Editor’s note: This story was previously published in March 2019. It has since been updated and republished.
Will it, or won’t it? Will the war of tariffs being waged between the United States and China finally come to a close with an amicable solution?
Still, it’s not a stretch to suspect whatever resolution is in the works will wind things back to the way they were early in the Trump Presidency. That means whichever stocks suffered because of stymied trade should find relief, while those names that were boosted by tough tariffs may also bump into a new headwind.
There’s also a good-sized group of stocks that may peel back in response to encouraging headlines about tariffs due to the oft-seen “sell the news” effect.
To that end, here’s a rundown of the top nine trade war stocks to sell now that it looks like the trade war is near an end.
It was already fighting a losing battle, to be clear. The unveiling of an actual $35,000 version of the Model 3 had already sent Tesla (NASDAQ:TSLA) to multi-week lows, once investors realized the cost-cutting lengths to which the company had to go to in order to manufacture a car that cheap. But, an end to the tariff tiff could make matters even worse for TSLA stock.
It seems counterintuitive. CEO Elon Musk already mentioned plans to make Model 3 cars in the United States to ship to China. The removal of the tariff on them would make them easier to sell there … at least until its Model 3 production line in China is activated later this year.
That’s not the concern, however. Although it could take years if not months to be noticed, the free flow of components and competing cars from domestic as well as foreign EV makers will only bolster electric competition for Tesla in the United States. Even the newest Chinese EV darling Nio (NYSE:NIO) says its long-term goal is to deliver automobiles to the U.S., while China’s Kandi has already received permission to do so.
It’s another counterintuitive idea. Amazon (NASDAQ:AMZN), which often offers its merchandise at the lowest retail cost in North America, relies on low-cost, Chinese-made goods to sell. The evaporation of import tariffs will allow it to continue selling bargain-priced merchandise.
At another time and in another scenario, an end to a trade war might be bullish for AMZN stock for that reason. Right now, however, it could prove problematic.
Brick-and-mortar rival Walmart (NYSE:WMT) has finally figured out a formula to compete with Amazon online. Last quarter’s e-commerce sales were up 37%, extending a solid streak of big double-digit growth.
With the same access to the same tariff-free goods, lower-cost merchandise would actually serve Walmart more than it would Amazon.com right now.
VanEck Vectors Vietnam ETF (VNM)
It went largely unnoticed, while investors were jockeying to figure out which stocks affected by trade war rhetoric would be hit the hardest, but what proved to be trouble for China also ended up being a boon for other U.S. trade partners.
Chief among those beneficiaries was Vietnam. While factories slowed if not outright shuttered in China, Vietnam’s GDP improved by 7.1% last year — the best year since 2007 — as its manufacturing machine picked up the pace.
Surprisingly, that economic growth hasn’t proven particularly bullish for the VanEck Vectors Vietnam ETF (NYSEARCA:VNM). Despite the backdrop, investors have been concerned about the ripple effect of China’s slowing economy. Nevertheless, a revving of China’s economic engine would cast a bearish shadow on Vietnam’s nascent growth.
Micron Technology (MU)
Micron Technology (NASDAQ:MU) and its computer-memory making peers have been facing headwinds much bigger than a trade war. It, along with SK Hynix and Samsung Electronics (OTCMKTS:SSNLF), have been dealing with a supply glut that has gouged the price of the RAM/DRAM memory chips needed to make your electronic devices work.
And yet, in most regards, Micron is still one of the most noteworthy trade war stocks investors are watching. Not only does half of its revenue come from Chinese buyers in need of its tech, but the company also claims China has been stealing trade secrets and intellectual property, putting Micron at a disadvantage.
While at least some of the political pushback has been rooted in IP theft, of the scant details heard thus far about the discussions between President Trump and Chinese leader Xi Jinping don’t appear to address much in the way of patents and the protection of technological know-how.
Boyd Gaming (BYD)
It’s one of several trade war stocks that’s benefitted more from psychology than demonstrable business growth (although the stock’s still been a relatively disappointing performer). But, to the extent Boyd Gaming (NYSE:BYD) was boosted by the advent of the trade war, the end of the tariff spot could take the wind out of itself.
The underpinning of the theory has everything to do with Macau … China’s gambling enclave where U.S.-based gambling giants like Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) have a presence, and where Boyd doesn’t.
It matters. Although the actual impact on gaming was unclear, the premise likely cast a favorable light on BYD, while working against Macau-exposed players. Should the political tensions end, a reversal of that mindset could push outfits like Wynn and Las Vegas Sands back in favor, at the expense of Boyd.
It’s a misnomer to think all smartphones, and smartphone tech, is ultimately made in China. Nokia (NYSE:NOK) is based in Finland, out of the trade war’s theater, and circumventing the targeting of China’s Huwaei and ZTE. Tariffs made Nokia’s phones price-competitive in the U.S. again.
The matter goes well beyond phones though and extends into the infrastructure that will eventually power 5G connectivity. The U.S. government is wary of relying on any Chinese telecom tech, for security reasons. And, as Jim Cramer asked so bluntly, “If you’re a telco carrier and warned off of Huawei and ZTE, where are you going to go buy your 5G technology?”
The answer — at least one of them — was Nokia. Indeed, NOK stock has been an impressive performer for months now for this very reason.
If any deal between China and the U.S. is relatively lenient on China’s telecom technology powerhouses though, Nokia could wind up in the same backseat it was in just a year ago.
Archer Daniels Midland (ADM)
The advent of the tariff war has proven anything but bullish for shares of Archer Daniels Midland (NYSE:ADM), but not because it has created a headwind. Indeed, Archer’s second-quarter operating profit last year more than tripled year-over-year, and the company topped estimates for its third quarter as well.
“In this environment, Archer has done a better job of executing,” explained Morningstar analyst Seth Goldstein following its third-quarter report, tacitly acknowledging that ADM has the scale and reach to drive profits that small independent players don’t.
The company’s consistent success hasn’t helped the stock much. It’s down nearly 5% so far this year. An end to the trade war, however, could still be interpreted as problematic given that much of last year’s pricing power was also rooted in poor crop output in South America.
In the meantime, nearly a year removed from the start of the tit-for-tat tariffs, the marketplace has likely found ways around Archer Daniels Midland’s firm pricing.
Railroad name CSX (NASDAQ:CSX) is another one of the trade war stocks that has been tough to pin down. On the one hand, more self-reliance on domestic production of commodities drives demand for coast-to-coast shipping. On the other hand, much of the shipping of goods within the United States was of goods delivered from China.
So far the impact of the trade war appears to be net-neutral, in terms of demand for freight services.
But, with the stock up 23% this year thanks to perceived demand growth — it’s mostly higher shipping prices driving rail delivery revenue higher — the routing of more commodity purchases through maritime ports would easily lead investors to doubt the continued strength of CSX stock.
Dollar General (DG)
Finally, add Dollar General (NYSE:DG) to your list of trade war stocks to sell that could be upended by an apparent end to the bickering.
It’s a scenario not unlike the one CSX stock is in. That is, psychology more than any other factor has driven DG stock higher to the tune of 41% over the course of the past twelve months, largely because the retailer was touted as a means of sidestepping the impact of the trade war. Not only is 100% of its revenue generated in the U.S., but it benefits from any price hikes bigger rival Walmart is forced to impose.
All those tailwinds will abate, however, if tariffs are wiped away … or even just dialed back.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.