After some signs of an attempt to soothe brewing bitterness, a suspected spy balloon flying over much of the continental U.S. dramatically pressured U.S.-China relations, in turn suggesting that investors need to adjust their stocks to buy accordingly. Essentially, market participants must focus on the essentials as economic consequences may erupt from the flareup in tensions.
It’s an odd situation, to be sure. Just prior to the balloon incident, both U.S. and Chinese officials agreed to discuss various contentious matters.
While the two nations stand at loggerheads over Taiwan, they also feature an intertwined economic relationship. As well, they cooperate on certain issues, such as narcotics enforcement, climate change and pandemic prevention.
But because of the rude timing of the alleged spy balloon journey, investors need to focus on relevant stocks to buy. Mainly, the competition between the two sides is on. Unfortunately, this narrative implies greater resource securing and consumption, sparking an inflationary impact.
To protect yourself, it’s best to assume the worst. These are the stocks to buy as U.S.-China tensions flare.
Exxon Mobil (XOM)
Arguably one of the most relevant stocks to buy amid worsening U.S.-China relations is Exxon Mobil (NYSE:XOM).
To be sure, the big oil giant doesn’t align with contemporary ideological views regarding clean and sustainable energy. However, with relations between the top two economies of the world at a low point, you can imagine the Chinese won’t care so much about climate goals. So, consumption will rise, thus cynically lifting XOM.
Another reason to target Exxon as one of the stocks to buy centers on China’s economic reopening. With increased commercial activity comes greater resource consumption. Greater resource consumption translates to more dollars chasing after fewer critical commodities.
Therefore, inflation can spike irrespective of whatever the Federal Reserve does (short of imposing a radical interest rate hike).
Further, Exxon just makes sense from a purely financial perspective. Commanding a top-tier revenue growth rate and solid profit margins, it enjoys overall operational excellence. As well, it features strong stability in the balance sheet.
Lastly, Wall Street analysts peg XOM as a consensus moderate buy. Further, their average price target pings at $124.88, implying over 7% growth.
Sempra Energy (SRE)
While inflationary pressures will almost surely lift prices of electricity and other critical resources, investors should consider Sempra Energy (NYSE:SRE) as one of the stocks to buy.
Fundamentally, utilities benefit from their position as natural monopolies. Basically, companies like Sempra feature too massive of a footprint to dislodge. In other words, the barrier to entry is far too steep for would-be competitors.
Admittedly, Sempra’s financials by themselves don’t look too great. For instance, its Altman Z-Score of 1.18 actually sits in the distressed zone. Further, its three-year revenue growth rate of 3.1% ranks below the sector median of 4.75%. Objectively, the market prices SRE at a forward multiple of 17.48, translating to an overvalued profile.
Despite these challenges, Sempra operates a better-than-average profitable enterprise. Also, the company covers much of Southern California. With the Golden State representing the economic engine of the U.S., Sempra won’t be dislodged anytime soon.
Moreover, Wall Street analysts peg SRE as a consensus moderate buy. Their average price target stands at $172.50, implying upside potential.
Should U.S.-China relations worsen from here, Costco (NASDAQ:COST) offers an intriguing opportunity to park one’s money.
As stated above, the terse words and implied hyper-competitiveness associated with the balloon fallout may lead to consumption without care. If so, such a global dynamic would likely lead to accelerated inflation. Fortunately, Costco represents one of the most practical ways to mitigate rising prices.
If consumers anticipate that inflation will become the norm, they may start buying essential non-perishables in bulk. Under this framework, Costco stands to benefit handsomely. After all, its entire business model centers on bulk shopping.
Another factor favoring COST as one of the stocks to buy focuses on its core customers. On average, Costco customers are younger and wealthier than patrons of other big-box retailers. Therefore, Costco members should be more economically resilient than average.
Finally, Wall Street analysts peg COST as a consensus moderate buy. As well, their average price target stands at $558.17, implying meaningful upside potential%.
Because this list of stocks to buy focuses on the essentials, the inclusion of PepsiCo (NASDAQ:PEP) might seem odd.
Let’s face it – it would be nice to knock down an ice-cold can of Pepsi on a hot summer day. However, water will do just fine. Nevertheless, I suspect many folks underestimate the significance of a company like PepsiCo.
For one thing, America has a caffeine addiction. Some 90% of us consume caffeine in some form. Now, if you’ve been to your local Starbucks (NASDAQ:SBUX) lately, you’ll notice that prices have become utterly ridiculous.
Instead of paying six bucks or whatever it is for one drink, you should be able to pick up at least a six-pack. Over time, this adds up to significant savings.
Second, everybody needs either downtime or some form of stress release. While I’m not about to make any personal recommendations, some folks may find comfort in soda or some other treat. In moderation, the associated endorphins may promote overall positivity based on a work-reward cycle.
Finally, Wall Street analysts peg PEP as a consensus moderate buy with an implied upside target of over 8%.
When it comes to electric vehicles and the future of mobility, it’s not just the U.S. that’s aggressively competing in the sector.
In many ways, the Chinese government has gone all-in on EVs. Granted, I don’t think it’s a controversial opinion to assume that American manufacturing would beat out Chinese standards. However, it’s not just about quality, which makes metals and mining firm BHP (NYSE:BHP) so compelling.
Indeed, accelerated competition in the EV space translates to significantly more critical resource consumption. Under this framework, BHP almost invariably commands an extremely relevant business profile. Plus, with other countries stepping up their efforts in electrification, BHP easily ranks among the stocks to buy.
Financially as well, BHP offers an attractive canvas for investors. Both its revenue growth rate and especially its net margin rank above their sector median values. Also, the market price BHP at a trailing multiple of 5.51. As a discount to earnings, the company ranks better than 76% of its peers.
Hecla Mining (HL)
Staying on the metals and mining track, investors that want to take a speculative but evidence-based approach to stocks to buy on deteriorating U.S.-China relations should consider Hecla Mining (NYSE:HL).
Specializing in precious metals, its focus on silver presents enormous relevancies. According to the Silver Institute, the underlying metal plays a vital role in the production of solar cells.
Here’s the deal. Though China carries a reputation as a polluter, it also dominates the key manufacturing stages of solar panels.
Of course, that’s a major problem for the U.S. and western countries because they’re increasingly integrating green solutions. Further, Russia’s invasion of Ukraine also incentivizes European countries to fast-track renewable energy solutions. In other words, we’re dealing with three-dimensional chess, a game that should benefit HL.
For full disclosure, investors will need to trust the narrative. Objectively, HL ranks as one of the more overvalued stocks to buy. Still, if it’s any comfort, Wall Street analysts peg Hecla as a consensus strong buy.
As the Covid-19 crisis unfolded, a key lesson learned painfully was that the U.S. should not make its critical supply chains vulnerable.
In part to address this vulnerability, the Biden administration launched the bipartisan CHIPS and Science Act of 2022. Moving forward, the legislation should promote the manufacturing of critical technologies at home, boding well for GlobalFoundries (NASDAQ:GFS).
A few days ago, GlobalFoundries – a semiconductor contract manufacturing and design company – inked a partnership with General Motors (NYSE:GM). The deal ensures that GM receives earmarked supplies of necessary chips. It, too, learned the harsh lessons of the Covid-19 pandemic. Dependency on others (especially other nations with often incongruent interests) can be difficult to say the least.
Should relations with China continue to deteriorate, I expect the Biden administration to continue implementing a framework favorable to GFS. Heck, it’s one of the few bipartisan issues so the narrative makes it one of the top stocks to buy.
To top it off, Wall Street analysts peg GlobalFoundries as a consensus strong buy. It’s really a no-brainer in terms of speculative investments.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Consumer Discretionary, Energy, Industrial, Renewable Energy, Battery, Lithium, Retail, Technology, Semiconductor