Goldman Sachs Says Buy These Service Provider Stocks for Ongoing Trade War

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Just a short 60 days ago, it looked a settlement to the trade dispute between the United States and China was all but over, but in the space of a week, the U.S. president announced a 10% tariff on $300 billion of Chinese imports to start on September 1, and China responded by suspending agricultural imports. In addition, the Chinese effectively weakened the country’s currency to more than seven renminbi per U.S. dollar for the first time since 2008.

With an August 19 date looming for the Huawei extension to run out, a key reason for the Chinese stepping away from the table, things could start to get ugly. The Goldman Sachs team explained why the Huawei issue is so big for the company in a recent report:

The US government granted a 90-day exemption ending August 19th that allows Google to send software updates to Huawei phones. A further extension appears unlikely given the US government announced this week that federal agencies are prohibited from doing business with Huawei. Huawei sales outside of China will face risk immediately after August 19th because most customers will not purchase a smartphone from a manufacturer prohibited from updating the operating system.

They also note that retaliation from the Chinese is likely, should an extension not be granted. They make the case in the report that the best stocks for investors to own during the trade war may be services-providing companies:

The US-China trade dispute has had a more negative impact on the fundamentals and share price performance of Goods-producing companies compared with Services-providing firms. Services stocks have less foreign input costs that might be subject to tariffs and are also less exposed to potential trade retaliation given they have less non-US sales exposure than Goods firms.

Many of the services-providing firms on the Goldman Sachs list have had big year-to-date returns, and also some are among the mega-cap tech companies now under scrutiny by Congress. We avoided those and screened for better value, and companies that pay solid and dependable dividends. Five look like good ideas for the rest of 2019, and Goldman Sachs rates all at Buy.

Bank of America

This company posted solid second-quarter results. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations and governments in the United States and internationally.

Bank of America operates some 5,100 banking centers, 16,300 ATMs, call centers, online and a mobile banking platform. It is the second-largest bank in the United States by assets, and most recently posted a profit of $7.35 billion, an 8% increase from a year earlier. Per-share earnings topped the estimate of analysts polled by FactSet as well.

Bank of America investors receive a 2.54% dividend. The Goldman Sachs price target on the stock is $32, and the Wall Street consensus target is $33.61. The shares closed Friday’s trading at $28.33 apiece.

Disney

This is a top consumer media company with multiple streams of income to push revenue, and it is a member of the Merrill Lynch US 1 list. Walt Disney Co. (NYSE: DIS) stock continues outperforming on a near-term and long-term basis. With the movie studio business poised to improve, as with accelerating theme park business, the network programming continues to drive viewership with extensive sports programming.

The Disney Media Networks segment operates broadcast and cable television networks, domestic television stations and radio networks and stations, and it is involved in the television production and television distribution operations. Its cable networks include ESPN, Disney Channels, and ABC Family, as well as UTV/Bindass and Hungama. This segment also owns eight domestic television stations.

Families have been flocking this summer to the company’s theme parks such as Disneyland, Walt Disney World in Orlando, Magic Kingdom Park, Epcot, and also the international park. Despite the company reporting weak second-quarter results, the analysts remain positive on the shares.

Disney shareholders receive a 1.24% dividend. Goldman Sachs has a $148 price target, while the consensus price objective is $151.43. The shares closed at $139.33 on Friday.