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Trade War Blows Get More Severe: 5 Ultra-Safe Picks

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The United States and China have slapped fresh duties on each other’s goods after midnight Washington time on Sep 24 (noon in Beijing).

Both the sides show no signs of conceding, sending ripples through the financial world. After all, trade wars deal a severe blow to corporate profit margins. Against such an upsetting backdrop, investing in stocks that provide excellent risk-adjusted returns seems judicious.

US Imposes Fresh Tariffs With No Trade Talks in Sight

The Trump administration has slapped fresh 10% tariffs on thousands of Chinese products worth $200 billion. Some of the products include food seasonings, baseball gloves, network routers and industrial machinery parts. The latest round of tariffs also affected hundreds of millions of dollars of furniture and electronic imports.

President Trump’s slew of new tariffs on China now applies to more than $250 billion of Chinese goods that make up nearly half of the Asian nation’s sales to the United States. By the way, U.S. tariffs are supposed to rise at the end of this year from 10% to 25%.

Trump’s decision to move ahead with tariffs seems to have put brakes on the latest round of negotiations between the two sides. Treasury Secretary Steven Mnuchin did invite Chinese negotiators to resume talks, but, a senior White House official confirmed that no such meeting has taken place.

Trump, nonetheless, did say that “we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies. We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices.”

The United States has already complained that Beijing forces foreign companies to hand over technology. Many American officials have said that China’s plan for state-led development of global competitors in robotics and other technologies does violate its open-market policy and may affect the United States’ industrial leadership position.

China Accuses US of Economic Hegemony

China immediately issued a 36,000-word white paper accusing the United States of “economic hegemony.” It said that “the US has brazenly preached unilateralism, protectionism and economic hegemony, making false accusations against many countries and regions, particularly China, intimidating other countries through economic measures such as imposing tariffs, and attempting to impose its own interests on China through extreme pressure.”

China, in fact, retaliated with tariffs on U.S. goods worth $60 billion, a move that may prompt the U.S. President to impose fresh duties on another $267 billion in Chinese imports. This, in turn, would cover almost everything that China sells to the United States.

The General Administration of Customs in China, however, remained at ease. It said that it has started collecting additional taxes of 5% and 10% on a list of 5,207 American goods from honey to industrial chemicals. Communist leaders did offer to narrow their trade surplus with the United States by acquiring more natural gas and other American exports. However, they refused to change industry plans since they see it as a path to prosperity and global influence.

Trade War Blow on Companies: 5 Safe Bets

Trade wars eat into profit margins of companies and affect the overall economy. The latest tariff exchanges did hit U.S. bourses, killing investors’ risk appetite.

Investors, thus, should build a strategy on low-risk assets and a combination of parameters that leads to better returns. The best way to go about doing this is by creating a portfolio of low-beta stocks, which are inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1.

These stocks are also dividend payers and are domestic producers of goods. Dividend paying stocks boast immense financial strength and are resistant to market vagaries. Such stocks reflect solid financial structure, healthy underlying fundamentals and better quality business. To top it, due to their limited international exposure, they offer higher protection than their large- and mid-cap counterparts against any economic upheaval.

We have, thus, selected five stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Sierra Bancorp (BSRR - Free Report) operates as the bank holding company for Bank of the Sierra that provides retail and commercial banking services to individuals and businesses in California. The stock currently has a Zacks Rank #2 and a beta of 0.69. The company has a dividend yield of 2.1%, while its five-year average dividend yield is 18.6%.

Sierra Bancorp’ expected earnings growth for the current year is a solid 28.4%. In the last 60 days, two earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 2.1% in the same period.

JMP Group LLC provides investment banking, sales and trading, equity research, and asset management products and services in the United States. The stock currently has a Zacks Rank #1 and a beta of 0.56. The company has a dividend yield of 6.9%, while its five-year average dividend yield is 20.2%.

JMP Group’s expected earnings growth for the current year is a superb 70%. In the last 60 days, one earnings estimate moved up, while none moved down for the current year. The Zacks Consensus Estimate for earnings soared 54.5% in the same period.

Northrim BanCorp, Inc. (NRIM - Free Report) operates as the bank holding company for Northrim Bank that provides commercial banking products and services to businesses and professionals in Alaska. The stock currently has a Zacks Rank #1 and a beta of 0.71. The company has a dividend yield of 2.5%, while its five-year average dividend yield is 7.5%.

Northrim BanCorp’s expected earnings growth for the current year is an encouraging 39.7%. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 15.4% in the same period. You can see the complete list of today’s Zacks #1 Rank stocks here.

Blue Hills Bancorp, Inc. operates as the bank holding company for Blue Hills Bank that provides financial services to individuals, families, small to mid-size businesses, government, and non-profit organizations in Massachusetts. The stock currently has a Zacks Rank #1 and a beta of 0.08. The company has a dividend yield of 3.2%, while its five-year average dividend yield is 232.9%.

Blue Hills Bancorp’s expected earnings growth for the current year is a promising 78.6%. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings jumped 8.7% in the same period.

NexPoint Residential Trust, Inc. (NXRT - Free Report) is a publicly traded REIT, with its shares listed on the New York Stock Exchange. The stock currently has a Zacks Rank #1 and a beta of 0.81. The company has a dividend yield of 3.1%, while its five-year average dividend yield is 39.3%.

NexPoint Residential Trust’s expected earnings growth for the current year is a whopping 64.1%. In the last 60 days, four earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings climbed 16.4% in the same period.

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