In 2018, the stock market has been presented with two major risks:
These risks have reared their ugly heads from time to time, and caused broader market volatility. Each time, though, the market has shrugged off the risk to ultimately head higher.
Right now, inflation concerns are subdued as the 10-Year Treasury yield has backed off 3%. But trade risks are at all-time highs as President Donald Trump continues to impose tariffs. Simultaneously, no one on the global political landscape appears willing to stand down, so tensions are escalating and the likelihood of a trade war breaking out is rising.
If things go on like this, trade talk will get ugly and the stock market will suffer.
But not all stock should be treated equally. Indeed, there are certain “trade war stocks” out there which should be largely immune to tariffs and trade talk. These stocks should head higher regardless of what happens on the trade front.
With that in mind, here’s a list of my three favorite trade war stocks to buy if all this trade talk takes a nasty turn.
Trade Wars Stocks to Buy: Facebook Inc (FB)
The FANG stocks are largely insulated from trade war risks for two major reasons: 1) they are giant internet companies that benefit consumers globally via services that won’t be affected in a trade war, and 2) they don’t have a presence in or reliance on China.
Of the FANG stocks, perhaps the one best positioned to succeed amid rising trade war fears is social media giant Facebook (NASDAQ:FB).
Facebook is a global digital ad giant that benefits everyone, everywhere, regardless of nationality. Facebook’s ad services won’t be adversely impacted by tariffs, nor will the volume of ad dollars that flow through the company’s ecosystem or the amount of people who access Facebook every month.
Instead, Facebook will keep doing business as usual. They will keep providing the best, most robust, and most effective digital advertising solutions in the world, and they will continue to roll out new growth initiatives like Messenger/WhatsApp monetization, Workplace, Marketplace and smart home products.
Last quarter, “business as usual” was represented by 50% revenue growth. Trade war risks won’t affect that growth rate. Instead, over the next several years, growth will remain in the 30%-plus range because of the company’s multiple growth catalysts.
Facebook stock trades at less than 30-times forward earnings. A 30 multiple for 30%-plus revenue growth is a bargain, especially considering that the big growth isn’t at-risk to prevailing trade war fears.
As such, Facebook stock is definitely one of the top trade war stocks to own here and now.
Trade War Stocks to Buy: Alphabet (GOOG)
The other top trade war stock from the FANG group is Alphabet Inc (NASDAQ:GOOG).
Much like Facebook, Google is a global digital advertising giant that benefits everyone, everywhere. The company’s advertising services will not be materially affected by trade war fears or tariffs. The amount of money being pumped into the Google ad machine also won’t be affected, nor will the number of people using Google search.
Instead, much like Facebook, Google will keep doing business as usual. All the trade war talk is just noise in the background.
The upside in Google stock comes from valuation and the company’s unparalleled data-set, which positions it to be a leader in tomorrow’s data-driven and an artificial intelligence-dominated world.
Google has forever been a 20%-plus revenue growth company thanks to its robust digital advertising platform. But that growth could be super-charged over the next several years as Google turns its unrivaled database on consumer searches and preferences into unrivaled AI and automated technologies.
Indeed, at the current moment, Google is the innovation leader in tomorrow’s big growth spaces like self-driving (Waymo) and AI (Google Duplex). Google’s leadership position in these markets will only grow over the next several years since data is what powers advancements in AI. Accordingly, Google’s growth could get a super-charged lift over the next 5-plus years.
But like Facebook stock, Google stock trades at under 30-times earnings. That multiple is just too cheap. Consequently, Google is not only one of the best trade war stocks to own now, but also a great long-term investment.
Trade War Stocks to Buy: Verizon (VZ)
Perhaps the best trade war stock to own amid rising trade-related fears is telecom giant Verizon Communications Inc. (NYSE:VZ).
At its core, Verizon provides telecommunications services exclusively in the United States. This business inherently has mitigated exposure to tariffs and trade. Consequently, regardless of what happens on the global trade stage, Verizon’s U.S.-based telecom business will be largely unaffected.
Moreover, Verizon is a big dividend payer with a yield of nearly 5%. As broader market fears escalate, investors tend to flock to dividend safe-havens with big and sustainable dividends. Verizon is exactly that.
And then there is the whole improving fundamentals part of Verizon stock.
For years, the wireless service industry was one defined by ruthless competition, price cuts, market saturation, and margin erosion. But those fundamentals are starting to change, mostly due to the forthcoming roll-out of 5G coverage. That will allow Verizon to differentiate itself from the pack, thereby allowing Verizon to lift prices and grow market share. Revenues, margins, and profits will trend higher as a result.
Overall, then, Verizon is one of the best trade war stocks to own right now given its lack of international exposure and huge dividend yield. Moreover, improving fundamentals in the wireless services industry pave the path for meaningful earnings growth and stock price appreciation over the next several years.
As of this writing, Luke Lango was long FB, GOOG and VZ.
Source: Investor Place