These stocks are best positioned if there is a US-China trade war, Wall Street analysts say

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As negotiations and posturing continue between the U.S. and China, some individual company analysts this week used the drama to tout stocks they cover which are positioned well if there is a trade war.

At a rally on Wednesday night, President Donald Trump told a crowd that China “broke the deal.” Negotiations were expected to continue Thursday evening with Chinese Vice Premier Liu He having dinner with President just hours before the tariff hike.

The Dow is down more than 700 points in this weeks selloff while the S&P 500 has lost more than 3% after President Trump said last weekend that tariffs would rise on China.

While some analysts found stocks with a defensive focus, others found companies that were nearly immune to the trade battle.

One stock steering clear of any tariff trouble is Atkore International, according to analysts at RBC. Atkore manufactures electrical distribution products and reported solid earnings on Tuesday.

“Management remains confident in its ability to manage tariff headwinds. The company has minimal direct tariff exposure, and for the products that it does import from overseas, its competitors source these products from overseas too,” RBC said.

Shares are up 11% over the last month.

Power and utility stocks such as American Electric and Entergy Corp are, “made for performing in rising trade tension, ” say UBS analysts.

“Within utilities the most defensive names will be fully-regulated companies,” analyst Daniel Ford wrote.

Both stocks are down slightly in midday trading but up over 20% the last year.

AquaVenture Holdings, which provides water purification system solutions also reported solid earnings this week.

The company has, “essentially zero exposure to US-China tariffs or recent news headlines of escalating trade tensions,” said RBC analyst Deane Dray.

Here are other stocks analysts say to play in a U.S. China trade war:

“Packagers Less Exposed, Benefit from Defensive Focus – We view Packagers as less exposed to China trade tensions than Paper producers, as well as other Basic Materials sectors such as Chemicals and Metals & Mining. Packagers generally have limited sales vols that cross US & China, and while some US producers (AVY, CCK) have meaningful China footprints they largely procure raw materials and sell finished product in-country, so there is limited impact from tariffs. Other tariffs implemented in 2018, such as those on aluminum & tinplate steel, have had no material impact to canmakers BLL & CCK, which pass through metal costs. Perhaps the most direct impact from China tariffs to US Packagers has been on the NA glass market, where tariffs have discouraged cheap glass container imports from China – which we est. have represented low-mid single digit % of total demand.”

Two Stocks Helped; MHK and FBHS(??). As we discuss in our note last year on MHK, the tariff would most likely have limited impact on ceramic tile given the multiple other countries that could supply the product. We are also not very bullish on a recent anti dumping filing on ceramic tile but note that combined they could have a notable impact. The LVT flooring market could be significantly impacted given that most product is produced in China and could raise pricing for all as well as making MHK’s domestic production that much more valuable. While initially hurting FBHS plumbing and cabinet business, it could serve as nice positive longer term to help raise the value of their domestic production. There is also an anti-dumping.”

“Outperform-rated AquaVenture reported a solid 1Q19 beat & reaffirm, with adjusted EBITDA of $17.8 million roughly 2% above our estimate and consensus…Our position has long been that the $130 million acquisition of AUC in Nov-2018 instantly recast the Ghana deal as a “nice to have”, but only if the terms were decidedly favorable for AquaVenture. We expect management to now focus its attention and bandwidth on other less onerous deal prospects, which would potentially be accretive to its current 2019 guidance framework. As for the stock, we would expect an in-line reaction to modest outperformance in response to the 1Q19 beat and reaffirmed guidance. We highlight that AquaVenture has essentially zero exposure to US-China tariffs or recent news headlines of escalating trade tensions.”

“We believe BC is a very well run organization with strong market share and a smart growth strategy. The decision to separate Fitness is a strategic positive and we think it will help shares in the long run. That said, we believe the stock is fairly valued here and remain Hold rated. Over the past few years, BC’s stock performance has relatively closely tracked the broader Rec. Vehicle peer group, though given its superior engine biz, strong market share positions in key categories, and best-in-class status, among other factors, we believe it should have been able to outperform peers. We believe this has been driven by a confluence of factors, including choppy qtrly performance, changing strategy/turnover in key positions, and external headwinds (e.g., tariffs, Hurricane Irma, stock market volatility), which have limited visibility.”

“F2Q19 marked another strong quarter for Outperform-rated Atkore with a 15c operating beat fueled by positive Electrical Raceway volumes and solid pricing gains. Atkore expects to stay price/cost positive for all of 2019. The company is relatively insulated from tariff/trade-friction fallout. Net leverage of 2.8x looks manageable with plans to work it down to 2.5x by year-end. We still see shares as attractively valued….Management remains confident in its ability to manage tariff headwinds. The company has minimal direct tariff exposure, and for the products that it does import from overseas, its competitors source these products from overseas too.

“Best Positioned for a Defensive Trading Reaction: AEP, ES, ETR, EMA. Within utilities the most defensive names will be fully-regulated companies. As a result of strong performance in the last 12 months we view this sub-group as fairly valued against traditional metrics.”

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