Grab 5 Cheap Large-Cap Stocks On Eased US-China Trade Fear

Trade worries between the United States and China, which cast a pall on Wall Street for months, have eased. This is especially true as the world’s largest economies dropped their tariff threats and set up a framework for addressing potential trade imbalances in the future.

The Latest Development

Beijing has agreed to substantially reduce America's massive trade deficit with China but did not commit any specific amount. The Trump administration wanted to slash the deficit by $200 billion. China has promised to purchase more U.S. goods and services that would support growth and employment in the United States and increase U.S. agriculture and energy exports.

The U.S. Treasury Secretary Steven Mnuchin expects a big increase of 35-45% in domestic farm sales to China for this year and a doubling in sales of U.S. energy products to the Chinese market increasing energy exports by $50-$60 billion in the next three to five years. Morgan Stanley (NYSE:MS) estimates it could take up to three years to increase Chinese purchases of U.S. goods by $60-$90 billion, with a rise in agricultural imports in the near term followed by energy.

Though the talks are in the initial stage, it has cooled down tensions, which have heightened since the Trump administration proposed tariffs of $50 billion on Chinese goods and threatened to extend the levies to an additional $150 billion. China retaliated with its own measures targeting U.S. agriculture.

Market Impact

The news has injected fresh optimism into the markets, giving a fresh lease of life to the stocks. Dow futures rose 0.9% while the S&P 500 futures rose 0.6% at the time of writing. The smooth trading is likely to continue in the normal trading session and investors should cash in the opportunity to buy the stocks that are cheap relative to the S&P 500 and have a Zacks Rank #1 (Strong Buy) or #2 (Buy).

Further, we screened for the ones that have solid VGM Score of A or B, a double-digit estimated earnings growth rate for this year and a top-ranked Zacks industry (top 50%).

Western Digital Corporation (NASDAQ:WDC) – P/E Ratio: 6.33

This California-based company designs, develops, manufactures and markets a broad line of hard drives featuring leading-edge technology. It has an expected earnings growth of 59.41% for fiscal year (ending June 2018) and belongs to a top-ranked Zacks industry (top 4%). The stock carries a Zacks Rank #1 and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Magna International Inc. (NYSE:MGA) - P/E Ratio: 9.46

This Canada-based company is an independent supplier of original equipment components, assemblies, modules and systems and related tooling for cars and light trucks. It has an expected earnings growth rate of 17.28% for this year. Magna International has a Zacks Rank #2 and a VGM Score of A. It further falls into a top-ranked Zacks industry (top 24%).

Nucor Corporation (NYSE:NUE) – P/E Ratio: 11.19

This North Carolina-based company manufactures and sells steel and steel products in the United States and internationally. It has an expected earnings growth of 66.95% for this year and belongs to a top-ranked Zacks industry (top 14%). The stock carries a Zacks Rank #2 and has a VGM Score of B.

Sony Corporation (NYSE:SNE) – P/E Ratio: 11.54

This Japan-based company develops and manufactures consumer and industrial electronic equipment. The stock is expected to generate earnings growth of 27.96% for fiscal year (ending March 2019). SNE has a Zacks Rank #2 and a VGM Score of A. It belongs to the top-ranked Zacks industry (top 6%).

Caterpillar Inc. (NYSE:CAT) – P/E Ratio: 14.53

This Illinois-based company is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. Its earnings are expected to grow 53.78% for this year. The stock has a Zacks Rank #1 and a VGM Score of A. It falls under a top-ranked Zacks industry (top 15%).

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