15 Sectors to Buy on a U.S./Chinese Trade War (Part II)

 | Apr 09, 2018 | 9:00 AM EDT
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Here's Part II of my rundown of 15 market sectors that I think have little exposure to any U.S-China trade tensions.

The seven sectors below all look like good bets if we get any broad-market dips on trade tensions. (You can check out Part I of my list here):

9) Utilities

It doesn't matter which utilities you choose, provided that they have no affiliation with MLPs.

Take a look at my two favorites: Consolidated Edison (ED) and American Electric Power Co. (AED) . Don't necessarily buy them here, but consider how awful FirstEnergy Corp. (FE) and its finances are, then look again at these stocks.

I've also long been partial to CMS Energy (CMS) , while NRG Energy (NRG) is on fire.

10) Restaurants

It started happening a few weeks ago. You saw Cheesecake Factory (CAKE) , Cracker Barrel Old Country Store (CBRL) and Brinker International (EAT) all do better. I think Chipotle Mexican Grill (CMG) has obviously bottomed out, too.

Wendy's Co. (WEN) , whose management I met with recently, is also having a good ol' time. And don't forget Darden Restaurants (DRI) , which I think had a ridiculous overreaction to a forecast that was meant to be an underpromise. Even Sonic Corp. (SONC) , which just reported a terrible quarter, is on the way up.

In fact, domestic restaurants are one of the best places to be here despite worries about labor or commodity prices. And just for the record, McDonald's Corp. (MCD) -- which doesn't have much Chinese exposure -- bottomed out four weeks ago.

11) Brokerage Firms

Brokerage stocks shouldn't be doing this well, but they all are, led by E*Trade (ETFC) and TD Ameritrade (AMTD) . Let's also throw in Morgan Stanley (MS) and Goldman Sachs (GS) , the latter of which we've been buying for my Action Alerts PLUS charitable portfolio.

This group is very sensitive to margin rates and does very well when the Federal Reserve tightens credit, as the Fed is doing now.

12) Cybersecurity

Cybersecurity stocks are natural hedges against China, North Korea and Russia -- three potential U.S. enemies that some people claim engage in state-sponsored cyberterrorism.

Fortinet Inc. (FTNT) , Proofpoint (PFPT) and Palo Alto Networks (PANW) are your best bets here. There's no real need to stray from them unless you want to speculate on a turnaround at FireEye (FEYE) .

13) Business Services

Companies that cater to midsized U.S. businesses are terrific here. I particularly like Robert Half International (RHI) and Insperity Inc. (NSP) .

ADP LLC (ADP) also looks good, and I wouldn't rule out Paychex Inc. (PAYX) as a good place to go because its last quarter really wasn't that terrible.

And your best bet? Cintas Corp. (CTAS) , the uniform maker and servicer. The might be the "best-in-show" name here.

14) Homebuilders

These have all come roaring back ever since Lennar (LEN) said that U.S. job prospects are so great that you have to stop looking at short-term interest rates and focus on labor-force participation levels instead.

While the sector didn't go up in the wake of Friday's employment number (which went the wrong way for them), I would point out that homebuilder stocks are increasingly immune to Chinese fears.

15) Defense Stocks

I saved the best for last -- anything military, with the possible exception of Lockheed Martin (LMT) , which is being questioned about the Joint Strike Fighter's cost overruns.

I also like Raytheon (RTN) as the best pure play on world tensions, while Harris Corp. (HRS) and Northrop Grumman (NOC) look terrific as well. However, General Dynamics (GD) has some exposure to luxury aircraft, so "no thank you."

The Bottom Line

Now, I've found many groups -- consumer packaged goods, insurers, financial techs, etc. -- that have some good stocks and some bad ones. But the difference with the 15 sectors that I ran down today is that the vast majority of stocks in these areas simply don't stay down after the market gets hit by waves of Chinese-related selling. These names are all "under-owned."

Make no mistake about it, many of these stocks will go down -- big time -- with the rest of the market whenever President Trump lashes out against China. The difference is that there's no fundamental reason for their retreat in such instances.

That's why it's so rationally nice to buy them on China-related selloffs ... every single time.

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