5 Consumer Stocks To Yield Returns Despite US-China Tensions

Escalating trade tensions between the world’s largest economies, United States and China, are likely to cast a shadow on economies. Also, the disturbing recollection of the stock market crash of 1929, which was followed by the Great Depression, hounds investors.

After U.S. President Trump announced plans to impose tariffs on up to $60 billion of annual Chinese imports, China retaliated by revealing plans to levy tariffs on 128 U.S. products. This has given rise to fears of an all-out trade war between the countries.

How Will U.S.-China Clash Hurt Consumers?

The present U.S. market scenario shows increased consumer demand for goods and services. According to the Fed’s latest forecast, the economy is anticipated to grow at a reasonable rate of 2.7% in 2018. Unemployment is predicted at 3.8% for 2018 against the current 4.1%. Moreover, high real disposable income and low inflation are resulting in the favorable purchasing behavior. The fourth quarter of 2017 saw the highest consumer spending after three years, offsetting the impact of a surge in imports.

A trade war can therefore alter the rosy scenario as American consumers will now have to face a dearth of China-imported products. Tariff on Chinese imports will unquestionably bump up prices, directly affecting consumers and their discretionary spending.

Cyclical Sectors at Risk

Cyclical sectors are likely to suffer a great deal if a trade war rages on as these are sensitive to the business cycle. Any economic crisis inevitably results in lower discretionary income. This is because higher prices compel consumers to prioritize spending.

The Consumer Discretionary and Retail-Wholesale sectors are most likely to bear the brunt of the trade conflict. Top retailers like Walmart (NYSE:WMT) have voiced concerns about the imposition of tariff as rising prices will affect sales.

The retail sector, which consists of companies providing food, drug, mail order, Internet commerce, consumer electronics, restaurants, apparel/shoes and jewelry are most likely to face a slump in sales if consumer discretionary spending falls.

Per a recent press release, China retaliated by raising import duties on a $3-billion list of U.S. pork, fruit and other products. On Apr 2, the nation raised tariffs on pork, aluminum scrap and some other products by 25% while 15% was imposed on apples, almonds and other goods.

This will deal a bigger blow to consumer income as U.S. farmers, who had exported nearly $20 billion worth of goods to China in 2017, will now face a deficiency.

Should Investors Fret?

Though the effects of a war are quite apparent, smart moves might help investors rake in profits from a few stocks in these sectors. Based on unique business strategies to drive profits, a few companies within the Consumer Discretionary and Retail sectors promises solid returns.

Top operators in these sectors are making pragmatic use of advanced technologies to innovate across value chains and thereby hold consumers. Consumer demand for goods is increasing and shifting among a range of formats and channels. Digital innovation, focus on continual product customization as well as launch and delivery of seamless consumer experience are expected to help these consumer-oriented companies make the most of the current economic condition.

The Consumer Discretionary sector has returned 4.7% over the past year as compared with the S&P 500’s gain of 9.6%. Since the sector is by large sensitive to macro-economic factors, its volatility is a pressing concern. Meanwhile, the Retail-Wholesale sector has been displaying steady growth. In the past year, the sector has gained 20.8%.

Per an analyst report by Deloitte, the retail market is projected to grow 3.2% to 3.8% in 2018. The linchpin to the strong near and long-term retail industry outlook is a strong labor market and rising consumer income.

Investors can therefore zero in on a few stocks that stand unbeaten despite the tumultuous market conditions.

Picking the Right Stocks

We have taken the help of Zacks Stock Screener to pick retail and consumer discretionary stocks whose earnings are projected to grow more than 50% in 2018 and flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Sony Corporation (NYSE:SNE) sports a Zacks Rank #1. The Zacks Consensus Estimate for the company’s earnings in 2018 is pegged at $3.86, reflecting 656.9% growth over 2017. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nintendo Co (T:7974)., Ltd. (OTC:NTDOY) also flaunts a Zacks Rank #1. The consensus estimate for 2018 earnings stands at $1.40, reflecting 278.4% year-over-year growth.

Caesars Entertainment Corporation (NASDAQ:CZR) has a Zacks Rank #2. The consensus estimate for earnings in 2018 is at 59 cents, suggesting 117.5% year-over-year improvement.

Beacon Roofing Supply, Inc. (NASDAQ:BECN) has a Zacks Rank #1. The consensus estimate for 2018 earnings is pegged at $3.56, projecting growth of 63.3% from the prior year.

PetMed Express, Inc. (NASDAQ:PETS) carries a Zacks Rank #2. The consensus estimate for 2018 earnings is pegged at $1.77, mirroring a 51.3% increase from 2017.

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