Boy, does this President ever think China is a paper tiger. Think about it. We import $500 billion from the Chinese. You put tariffs on $400 billion on top of the $50 billion, you are pretty much targeting everything. You are making a bet that the Chinese need us more than we need them.
Can it work?
Remember there are two variables. There's the pain that we receive in the stock market and the gain we may receive on trade.
Here's the issue. If you just looked at the domestic economy, you know it can handle it. We may be, at this very moment, among the strongest economies in the world.
But if you look at it from the point of view of the stock market, look out. The GLUM index is going to take a beating. Now we have to decide if individual stocks are.
Here are the five that I am most concerned about, including some members of my made up ETF, the GLUM. These are direct China issues -- and they could be the ones that China decides have to stop selling there.
First, is Boeing (BA) . I have been saying that if you take China out of the queue, there would be plenty who would jump into it. But the fade can't be bought because no one has believed me when I said they need our planes more than we need them.
Second is Caterpillar (CAT) . Twenty-one percent of CAT is Asia/Pacific. A sizable portion of that 21%, the part that is growing the fastest, will be hurt. Can't get around it.
We don't have a good read on the semiconductors. Their sales often look like they are direct to China. But China is an assembler. So you have companies like Skyworks Solutions SWKS, Micron Technology (MU) and Intel (INTC) having about 90%, 77% and 63% Chinese exposure. But they are selling to manufacturers, which then export their products. There is no real replacement. But they always trade down on the first day.
China, for example, counts for 65% of Qualcomm's (QCOM) sales. Qualcomm negotiated hard with the Chinese for those sales. It would be highly unusual for the Chinese to just abrogate. However, I would think that the NXP Semi (NXPI) deal gets shelved, and that name trades on its own. I could see it trade back to the low $90s and Qualcomm back to the mid $50s, because it doesn't have the diversification it needs away from cellphones without that deal. However, it does do $4 billion in Internet of Things business, now. And I think it is about to solve its Chinese problem. So that's very positive, especially with its 4% yield.
We don't have Broadcom (AVGO) numbers, but what we do have is a buyback that is so voracious that I think this is one that can be bought after 10 a.m. and then again after 3:30 p.m.. If the stock is down more than $10, the brokers who are selling it will nail the close -- so stay away until 3:55 p.m., but be ready to buy tomorrow again before 10 a.m. when the buyback will begin anew.
Fifteen percent of United Technologies (UTX) is Asia Pacific, mostly Otis Elevator, said to be 600,000 a year and lots of service. Just hurt, period. You sell it on this, you lose the break-up that comes when UTX breaks apart.
3M (MMM) gets 30% of it sales from Asia, and a lot of its growth from China. I own it for the Charitable Trust -- but it will be an easy knockdown.
Kimberly-Clark (KMB) and Procter & Gamble (PG) are often considered Chinese plays -- because of diapers for KMB and all sorts of household products from PG. All I can say is dream on. But they get hit anyway. They only wish they had big sales there. Except today. In fact, all the food companies wish they had more sales there. For example, Pepsico (PEP) has 13% of its business in Asia. Easily boycotted but to what end?
Now some hardcore ones. What if the Chinese government wanted to boycott Apple (AAPL) ? Foxconn, a big assembler, employs a million people. We don't have numbers on how many would be thrown out of work, but it is considerable. Samsung's the winner and some associated cheap Chinese iterations.
There are 3000 Starbucks (SBUX) in China. A $2 tariff equivalent would crush them. Yum China (YUMC) is all China. You could boycott that easily. So go long Dunkin' Donuts (DNKN) or McDonald's (MCD) , short Starbucks.
General Motors (GM) sold 4 million vehicles in China last year, surpassing U.S. sales. These are jointly made with SAID, but it would put a crimp on sales and would make the $134 price target yesterday look a little ridiculous. But GM's now an autonomous car play.
Here are more wildcards: The big department stores, while they can source away from China, invariably half at least a quarter of their private label productsmade there. Costco (COST) and Home Depot (HD) sell a lot of merchandise sourced in China -- and those are very hot stocks that should get cool really fast. It will take a year, but China can lose all textiles. It's just too easy to switch if it is not economic -- and when the factories moved out of this country it took about a year to do so. The manufacturing of a lot of tools, though, and many other things, like toys -- which have already been hit -- will make things more expensive.
The dollar stores were not hit on the first tariffs. Now they should be, because they get a preponderance of their cheap, throw away, seasonal goods -- very important for their margins -- from China, even as most of the other stuff is sourced here, because they are brand name staples and it is hard to bring staples in from China. But there is plenty from China in every aisle. I would watch these closely.
It's possible that Disney's (DIS) movies won't be able to be be shown in China, and there could be a tariff on the theme park, but that's the outer reaches of the equation. Also tangential: Estee Lauder, which has a burgeoning business in China.
FedEx (FDX) , and to a lesser extent UPS (UPS) , have spent a lot of money building up Chinese business. It's nothing for the Chinese to stall either company's planes on the tarmac. I suspect that's a natural.
Remember we do about one -fifth the business in China that they do here. There are plenty of companies that expected and hoped to do business with China, including the finance companies that have failed miserably. As I mentioned, FANG gets the money in tech, along with the cloud kings like Salesforce.com (CRM) and VMWare (VMW) and Workday (WDAY) and Red Hat (RHT) -- the latter reports Thursday. Adobe's (ADBE) the one to watch there; it was just bouncing back. Keep an eye on Box BOX as it was just breaking out after a weak quarter. Other hot ones to watch Twitter (TWTR) , Square (SQ) , DropBox (DBX) . Those three are in the stratosphere.
We profiled Zuora (ZUO) , Zscaler (ZS) , Pivotal Software (PVTL) , DocuSign (DOCU) and Carbon Black (CBLK) as the most expensive stocks that have come public. There's an urge to get into them at all cost. So watch them.
What shouldn't be hurt at all? Domestic health insurers. Watch UnitedHealth (UNH) when it is down four, because it has a huge buyback. Watch Centene (CNC) , because it just closed on the Fidelis deal and its stock zoomed 15 points. Might be a natural, if it comes in.
It's a mess. Today's a mess. Tomorrow, too. And the retaliation day will be the second leg down. However, if China ever bends because the president is right, these "China" stocks will take off so hard, despite other parts of the world being weaker, that you will regret that you didn't buy tomorrow or even later today, if it holds past 2:45 p.m.