Worried About Even More Tariffs? 4 Stocks to Buy With Very Limited Trade Exposure

June 3, 2019 by 247lee

Depending on whom you listen to, the tariffs levied on products coming into the United States from abroad has either started a trade war that will hasten a new depression or it ultimately will speed up the time it takes to negotiate new trade deals. One thing’s for sure: President Trump, and many other trade experts as well, have said for years that tariffs imposed on American companies are wrong, not only in China, but in Europe and elsewhere, and the massive trade imbalances they help to create need to be addressed once and for all.

That being said, many investors are concerned that the growing trade issues will affect the stocks they own, as foreign nations impose tariffs on our exported products and services, which is indeed what we have seen as China has matched our tariffs.

We screened the Merrill Lynch research universe database looking for companies that do most of the business they conduct here in the United States, with little if any exporting of products or services. We found four that look like good stocks to own now and going forward. All are rated Buy, and all pay dependable dividends.

AT&T

This is the telecom component on the prestigious Merrill Lynch US 1 list. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE.

This telecom giant also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions. Trading at a very cheap 8.6 times estimated 2019 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.

The company reported a mixed bag for first-quarter results, and the Merrill Lynch team said this:

On a consolidated basis, first quarter revenue, EBITDA, and earnings per share were all pretty much in line with consensus estimates. Entertainment EBITDA was ahead of both us and the Street, as AT&T was able to bend the cost curve and drive up video average revenue per user. Due to definitional changes, AT&T’s implied capex guidance is $20 billion and not $22 billion where the Street consensus is today.

Investors in AT&T are paid a massive 6.6% dividend. The Merrill Lynch price target for the shares is $37, and the Wall Street consensus target is lower at $33.88. The shares ended trading on Friday at $30.59, down over 4% on the day.

American Electric Power

This industry-leading utility is also a solid dividend-paying company. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.4 million customers in 11 states. It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

Many on Wall Street feel that the stock trades at a discount to its utility peers, and they feel it deserves a premium. Top analysts also think the company may sell generating assets and buy back shares with the proceeds, which will be accretive as well.

American Electric Power shareholders are paid a solid 3.13% dividend. Merrill Lynch has a price target of $93, while the posted consensus target was last seen at $84.19. The shares closed trading on Friday at $86.12 apiece.

Jack in the Box

This top fast-food offering for investors to consider also has zero Chinese exposure. Jack in the Box Inc. (NASDAQ: JACK) operates and franchises Jack in the Box restaurants, one of the nation’s largest hamburger chains, with more than 2,200 restaurants in 21 states and Guam. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Eats, a leader in fast-casual dining, with more than 600 restaurants in 47 states, the District of Columbia and Canada.

The fast-food restaurant chain operator said that for its second quarter it brought in net income of $25.1 million, which amounted to $0.96 per share. On an adjusted basis, when considering restructuring costs and taking into account discontinued operations, the business brought in earnings of $0.99 per share.

Jack in the Box shareholders are paid a 2.08% dividend. The $94 Merrill Lynch price objective compares with the $91 consensus target price. The stock closed most recently at $83.20 per share.

Kroger

This top grocer does almost all of its business in the United States. Kroger Co. (NYSE: KR) is the second largest U.S. food supermarket retailer and generates $120 billion in annual sales. Kroger operates roughly 2,800 supermarkets throughout 35 states and under two dozen banners. Kroger also sells fuel at 1,450 supermarket fuel centers and operates 2,268 pharmacies and 274 jewelry stores.

The stock remains very cheap, as the company has a market cap of under $19 billion. The shares were nailed back in March when the company reported weak first-quarter results. While it is slowly recovering, the sell-off is still giving investors a great entry point.

Kroger shareholders receive a 2.48% dividend. Merrill Lynch has set its price target at $29. The analysts’ consensus target is $28.17, and the shares closed most recently at $22.81.

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While the rhetoric from China has escalated, the inescapable fact is that China exports far more to the United States on a dollar basis than the other way around, and eventually some sort of accord will be reached.

The newer tariffs that potentially will be imposed on Mexico are related more to the border crisis, and the country’s seemingly unwillingness to stop migrants from coming through their country to the United States. It is likely the government of Mexico will look to strengthen border security to avoid the potential upcoming tariff on all goods, and representatives already are in the United States looking for a solution.

The China trade issues remain a bigger threat, but it behooves both of the great powers to get a deal done, as slowing worldwide growth doesn’t need trade wars to slow things down even more.