The U.S.-China trade war is on and that makes finding good, safe stocks to buy much more difficult than before.
Over the past few months there was a semantics debate over what exactly the trade tensions between the U.S. and China should be labeled as. Is it a full blown trade war? Or is it just a trade dispute, or trade skirmish?
Today, that question seems fully answered. U.S. President Donald Trump upped the ante in early August by promising to introduce a 10% tariff on $300 billion worth of Chinese goods by September. China responded in force, suspending the purchase of new U.S. agricultural products and devaluing its own currency to decade lows against the U.S. Dollar.
As such, there’s no question about it. With both sides upping the ante to much more serious levels than before, the U.S.-China trade war is fully here.
Stocks dropped in response. Big time. In just a few trading days, the S&P 500 dropped more than 5%. As of this writing, it looks likely that the market’s decline will run into 10%-plus territory within the next few trading days. Thus, in a matter of a few trading days, stocks have gone from making new all-time highs, to being in correction territory.
That is the definition of volatility. And when volatility comes roaring back into markets, investors flock to safety. Common financial safe havens included Treasuries (which have been rally in mode) and gold (which just made a six year high).
Another financial safe haven is the class of high quality, high moat, big dividend stocks that won’t be hit hard by this trade war drama. As such, I fully expect those “safe stocks” to out-perform so long as trade war drama hangs around.
Which stocks fall into the safety stocks category? Let’s take a closer look at four safe stocks to buy amid the recent trade war turbulence.
Safe Stocks to Buy Amid Trade Turbulence: AT&T (T)
The first safety stock on this list is a telecom giant with a big yield, stable operations, minimal trade war exposure and huge forthcoming catalysts on the horizon.
AT&T (NYSE:T) is one of America’s largest telecom companies. As a U.S. telecom giant, AT&T’s operations won’t be disrupted by a trade war. Consumers will still need internet service and mobile coverage, and will be willing to pay up for it so long as labor conditions remain favorable (which they do). Furthermore, T stock has a 6% yield which: 1) is pretty much higher than every other blue-chip yield in the market, and 2) looks really attractive next to a 10-Year Treasury yield that is below 2%.
Also of note, AT&T has huge catalysts on the horizon that could breathe life back into this sluggish stock. First, AT&T is set to launch HBO Max soon, and this streaming service has enough content firepower from the Time Warner acquisition to make noise in the streaming landscape. If so, AT&T could pivot its negative cord-cutting narrative, into a positive streaming sub growth narrative. That will put upward pressure on AT&T stock.
Second, 5G smartphones are coming soon, and when they finally go mainstream in 2020, that will provide a huge tailwind for the entire wireless industry, telecom providers like AT&T included.
With those two big catalysts on the horizon — and with AT&T’s core fundamentals intact — T stock looks like a solid and safe stock to pick up with trade tensions heating up.
American Electric Power (AEP)
The second safety stock on this list is a utility company with a core business almost entirely unrelated to the trade war, a big yield that looks even better with interest rates so low and a history of operational and financial stability that bodes well for this stock during turbulent times.
U.S. utility giant American Electric Power (NYSE:AEP) stock thrives in the overlap of stability and yield. On the stability side, American Electric Power provides electricity services in the U.S., so they basically provide a secular demand service in the world’s strongest and biggest economy. That positioning lends AEP stock to unprecedented stability. That’s exactly what you get with American Electric Power. Over the past decade, this company has a done nothing but report consistent and healthy revenue, profit and cash flow growth.
On the yield side, AEP stock has a big yield (3%), which has been impressive for a long time (it has been above 3% for over 30 years) because of consistent dividend hikes (the dividend has gone from ~40 cents at the beginning of the decade, to nearly 70 cents today).
Broadly, then, AEP stock thrives in the overlap of stability and yield. That overlap is exactly where investors will flee if things get uglier in the stock market. As such, AEP stock looks like one of the safer stocks to buy if trade turbulence persists.
The third safety stock on this list is a media giant that, while possessing some trade war exposure, is mostly a company with enduring strengths that will withstand and outlast the trade war. It’s also just months away from its biggest upward catalyst in recent memory.
Disney (NYSE:DIS) stock isn’t exempt from the trade war. The company has a big parks business. That parks business is somewhat dependent on good trade relations, both because tourism drives a big chunk of revenue for domestic parks and because the company has a ton of international parks, too. There’s also the big studio business, which similarly has considerable international exposure.
But, it’s tough to see DIS stock really getting hit hard in this trade war. Currency headwinds will hurt, but outside of that, Disney has strong enough brand equity and strong enough global consumer demand to withstand and outlast trade war drama. Chinese consumers won’t quit going to Disney parks in China. Tourism might take a hit in the U.S., but domestic traffic trends should remain favorable. Also, nobody in the world is going to stop going to the movies because of this trade war.
As such, Disney’s secular growth drivers are strong enough to “beat” the trade war. Plus, DIS stock is heading into its biggest catalyst in recent memory with the launch of Disney+ in late 2019. That catalyst will make or break DIS stock — regardless of the trade war. I think it is quite likely to make DIS stock, as Disney+ has enough content firepower, has been hyped up enough and is cheap enough to immediately gain significant traction.
If so, DIS stock will only head higher over the next 12 months.
Tyson Foods (TSN)
While searching for safe stocks to buy, investors might consider this next pick a prime target. It’s a food giant that will largely keep doing “business as usual” amid trade war drama. It’s a stock that has a big yield and the company looks ready for a breakout to the upside.
Much like Disney, food giant Tyson (NYSE:TSN) isn’t exempt from the trade war. On the contrary, this is a global business with sizable trade exposure. The company sells products in America, Canada, China and the rest of the world. That means demand could be adversely impacted tariffs. It also means that a strong dollar could really take a bite out of the financials.
But, let’s zoom out. What does Tyson sell? Food. Will people stop eating because of the trade war? No. Thus, whatever demand headwinds do arise here, will be very small for TSN stock.
At the same time, Tyson just announced a portfolio of next-generation protein products that will hit shelves over the next few months, including Raised & Rooted plant-based chicken nuggets. These next-gen protein products will both improve the underlying financial trends as well as provide a lift to investor sentiment. That combination should ultimately push TSN stock higher, even amid trade war drama.
As of this writing, Luke Lango was long T, AEP and DIS.