Let's play a game: hostage versus non-hostage. It's a game that aims to tell the truth, not to follow conventional wisdom about which companies are really hostage to China.
I want to start with Caterpillar (CAT) . The company is on record saying that China is only 5% to 10% of its business. Oil is more important. Pipelines are more important. Construction here could be more important. But the stock is hostage because of the linkage: People perceive a rise in the price of oil can only be caused by China being back online. On Thursday, the stock got dinged by a critical downgrade after a run from $115 to $132. It was brutal and had impact even as there was a glimmer of hope about trade.
Bank of America (BAC) and Wells Fargo (WFC) : not hostage. Because of ETFs, these trade with the rest of the banks. There isn't enough individual stock picking in the group anymore. And banks are an opportunity down here versus compatriots who are thought to be China-linked, even as it's just plain tenuous.
Deere (DE) : hostage. Anything farm means if you don't have the Chinese in there buying it's perceived that American farmers don't have enough money to buy gear. Numbers are most likely too high.
3M (MMM) : totally hostage. You cannot get a rally in this stock without a turn in China. There's too much that isn't working. I would argue that, after a presentation this week, analysts have to cut numbers. Dicey.
Broadcom (AVGO) : Not nearly as hostage as people think, because CA and Symantec diversify the business away from China. Hock Tan knows what can happen if you are too linked to China, as is the case with Skyworks Solutions (SWKS) . Good place to go now that it has been de-risked by a so-so quarter.
The cloud kings, like Splunk (SPLK) , VMWare (VMW) , Workday (WDAY) : not hostage. They just don't do enough business in China.
PVH (PVH) : hostage. Too much capacity perceived to be made there. And hurt by tariffs. The only thing it has going for it is the gigantic, almost $10 million buy of stock by Manny Chirico, the chairman and CEO. It's been said that the company is too linked with JC Penney (JCP) and Macy's (M) and the buy might be idle. I don't believe in idle buys, but he knows more than me. No reason to buy, looking for reason to hold.
Nvidia (NVDA) : hostage. At this point, after a big run Nvidia needs this Mellanox (MLNX) deal to close because it would raise numbers, as Nvidia would basically be buying the other side of the board that it makes for the Internet of Things reach out.
Xilinx (XLNX) and Marvell (MRVL) : The first is hostage because it is linked to heavy equipment 5G build out in China. The second is perceived to be 5G everywhere but China, because it has already told you it's diversified away from the People's Republic.
The fact is most companies that did business in China haven't been able to get out of China with the alacrity of, say, Hasbro (HAS) and RH (RH) . Cisco Systems (CSCO) , for example, with very little China exposure, still had enough to kybosh the last quarter. Only Marvell seems to have worked hard to tell a non-hostage story.
We could play hostage/non-hostage for pretty much every stock save the REITs and the utilities, which is another reason besides lower rates that they have been fabulous.
Given that I see a tough road toward a trade deal, it is important to play hostage/non-hostage -- especially because earnings season is right around the corner. And this time, I expect pre-announcement precisely because for many companies the most priceless pieces of business, the real growth, comes from a PRC as anxious to diversify away from the U.S. as we are them.
