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.
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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.
24/7 Wall St.Mastercard
This continues to be one of the top credit card plays in the world. Mastercard Inc. (NYSE: MA) is a global payments provider that operates one of the largest payment processing networks, connecting billions of consumers, millions of merchants, and thousands of financial institutions in more than 210 countries. Its brands include Mastercard, Maestro and Cirrus.
The company also provides value-enhancing offerings such as loyalty and rewards programs, information services and consulting. According to Nilson estimates, Mastercard is the third-largest global credit and debit network, as measured by volume.
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Mastercard reported solid results, and the analysts said this in a recent report:
We see Mastercard’s solid performance as a positive, particularly given accelerating revenue and volume growth, in light of slightly softer peer reports – and we believe the stock should sustain its premium going forward. We continue to believe the company’s strong medium-term guidance (which calls for high-teens EPS growth over the next three years) demonstrates management’s confidence in the secular drivers for the business.
The dividend yield is just 0.46%. The $320 Goldman Sachs price target is well above the $307.63 consensus price objective. The shares ended last week trading at $274.95.
McDonald’s
While the fast-food giant does a ton of business overseas, it remains a solid pick for investors seeking dividends and a degree of safety. McDonald’s Corp. (NYSE: MCD) is the world’s leading global food-service retailer with over 37,000 locations serving approximately 69 million customers in over 100 countries each day. More than 80% of McDonald’s restaurants worldwide are owned and operated by independent local businesspersons, and it is one of the most valuable brands in the world.
The company reported second-quarter 2019 adjusted earnings per share of $2.05, which matched the Wall Street consensus estimate. Up 6.5%, global comparisons beat some estimates, with strong performance across the board, including the United States, which was up 5.7%. The Baird team expects strong performance for McDonald’s to continue as strong comps support store level returns, accelerating net store growth.
McDonald’s shareholders receive a 2.17% dividend. Goldman Sachs has set its price target at $250. The consensus price objective is $231.54, and shares were last seen trading at $221.15.
24/7 Wall St.Verizon
This top telecommunications company offers tremendous value. Verizon Communications Inc. (NYSE: VZ) is a global leader in delivering the digital world. Verizon Wireless operates America’s self-described most reliable wireless network, with 109.5 million retail connections nationwide.
Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.
Verizon investors receive an outstanding 4.32% dividend. The Goldman Sachs price target is $67. The posted consensus target was last seen at $59.95, and the stock closed most recently at $57.50.
These five top blue-chip stocks from the Goldman Sachs services-providing basket not only are priced right but come with dependable dividends. We are clearly in a vulnerable market, and while the economy is still acting good, indicators have slowed, the August volatility and doldrums are upon us and the geopolitical and domestic political arenas remain very volatile.
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