The 3 Best Stocks to Own in a Trade War

The threat of an all-out trade war with China has investors and traders alike on edge. But while a global trade war involving the United States could hurt some stocks, it's creating a profit opportunity in others. I'll show you exactly which stocks could benefit as new trade barriers are erected...

It's not just China that is a concern for the United States, either.

U.S. President Donald Trump has demanded a renegotiation of the North American Free Trade Agreement with Canada and Mexico. This has driven Mexico, a key agricultural customer, to turn to Brazil and Argentina for supplies of corn and soybeans.

Meanwhile, President Trump's decision to pull the United States out of the Trans-Pacific Partnership will have short- and long-term consequences for American trade with East Asian countries beyond China.

Plus, the battle between the United States and China could accelerate further and drive the U.S. economy into a short-term malaise that spooks investors into selling and turning toward safe-haven bonds, currencies, and hard assets.

You Must Act Now: America is headed for an economic disaster bigger than anything since the Great Depression. If you lost out when the markets crashed in 2008, then you are going to want to see this special presentation...

The CBOE Volatility Index (VIX) has already doubled since the start of the year, a sign traders are already uncertain about what the future will hold.

But that's no reason to leave the stock market. In fact, some stocks are going to see significant upside thanks to the looming threat of tariffs.

And we have three of the best stocks you can own to profit during a trade war...

Looking Domestic, Looking Small

Investors are worried about the S&P 500 in the event of a trade war, because mega-companies obtain a significant percentage of their revenue from overseas.

That's especially the case for a semiconductor firms like Skyworks Solutions Inc. (Nasdaq: SWKS), which has heavy exposure in China. In 2015, 67% of Skyworks' revenue alone came from The Red Dragon.

We want to limit this type of exposure in our own portfolios, and there are three ways to do this....

First, we want to focus on companies in dynamic sectors with high demand that comes exclusively from the United States.

No matter what happens in a trade war, these products will still have demand and get sold.

Second, we want to think small.

That means we want to consider small- to mid-cap companies that tap extensively into the growth of the U.S. economy. Given that a trade war could have a negative impact on GDP, we will focus on domestic trends that will ensure strong potential growth in their respective sectors.

Finally, we want to find undervalued companies in the United States that are on the trajectory for long-term revenue growth.

More revenue growth can attract more investors, and during times of economic turmoil, investors will pay a premium for companies with top-notch earnings.

Today, we're going to give you three ways to still make money during a trade war, and owning all three will help diversify your portfolio.

Best of all, these aren't high-risk stocks, but the profit potential could still be as high as 85% in the next 12 months...

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Trade War Stock, No. 1: CVS Health Corp.

Some companies derive nearly every dollar in revenue from the United States.

CSX Corp. (NYSE: CSX), Dollar General Corp. (NYSE: DG), and Intuit Inc. (NYSE: INTU) sit atop that list.

But it's hard to compete against a high-demand industry like health services, particularly when none of those other firms come close to offering the 3.24% dividend yield on a payout of $2 per share that CVS Health Corp. (NYSE: CVS) pays its shareholders.

Besides CVS' lucrative dividend payout, it's also full of growth potential.

CVS is about to make a huge splash in the healthcare market with its upcoming deal with health insurance giant Aetna Inc. (NYSE: AET).

The deal is a game changer, as it will accelerate the company's Minute Clinics," which provide short meetings with a nurse within the location. The integration of a major health insurance provider like Aetna will streamline the process of doctor's visits and pharmaceutical benefits management.

It's no surprise, then, that CVS stock has a Money Morning VQ Score™ of 4, our highest rating and a sign of massive growth potential...

And because of the potential merger, analysts are bullish on the CVS stock price.

In the next 12 months, investment banking firm Cowen & Co. project the CVS stock price will climb to $99 per share.

From the closing price on April 5, that's a potential 53.10% profit.

Trade War Stock, No. 2: Home BancShares Inc.

When focusing on economic growth at home, we naturally want to turn to the banking sector.

However, too many big Wall Street banks are susceptible to falling profits due to investment trading or shifting regulatory pressures.

Instead, we want to turn to the smaller, regional banks that provide strong growth potential from both their existing client base and their long-term growth plans.

That puts Home BancShares Inc. (Nasdaq: HOMB) on our radar.

Home BancShares, which operates as Centennial Bank, has 147 branches and over $14 billion in assets. The firm has the potential for robust growth through merger and acquisition activity, too.

And since 2013, HOMB has been on an acquisition spree...

In 2013, it acquired Liberty Bancshares Inc., which added $2.82 billion in assets for Home BancShares.

In 2014, it acquired two banks in Florida, as well as the Florida Business BancGroup Inc. in 2015.

In 2017, Home BancShares added another $2.89 billion in assets by acquiring Stonegate Bank.

Even if times get lean, this banking company has a war chest full of assets to bring in revenue.

Over the next 12 months, investment banking firm Stephens Inc. expects the HOMB stock price to climb to $29 per share.

From the closing price of 23.20% on April 5, that's a potential 25% gain.

That profit also doesn't include a dividend payout of $0.44 (1.90% yield), so that estimate could be too conservative.

Trade War Stocks to Own, No. 3: Energy Transfer Partners

Energy demand will remain robust in the United States regardless of what happens in a trade war with China. But we don't want to expose ourselves to those international giants like Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX), which rely too heavily on international revenue.

As I recently explained, I like the combination of value and income provided in closed-end funds.

But the problem is there aren't many in the energy space that I would want to buy right now.

That's because some of the best closed-end funds with exposure to energy are actually priced higher than their net asset value.

The reason for that has largely been the result of a sharp downturn in a number of different Master Limited Partnerships.

For example, the Tortoise MLP Fund sponsored by Tortoise Capital Advisors is currently trading at a 7.4% premium to its net asset value. This is the cream of the crop when it comes to CEFs in this space.

However, I dug into that portfolio, and one company stands out: Energy Transfer Partners (NYSE: ETP), which is the largest holding in the fund.

ETP transports natural gas, and it owns and operates 7,900 miles of natural gas transportation pipelines.

When we talk about a beaten-down stock, Energy Transfer Partners fits the bill. The price of ETP has declined more than 31% over the last year.

But the 8.2% decline over the last month is what really drew my attention. As it turned out, the sharp decline in MLPs we have seen recently isn't just tied to the threat of rising interest rates.

Recently, the Federal Energy Regulatory Commission said that MLPs will no longer be able to recover a tax allowance tied to their service rates.

But there was something that a lot of people weren't paying attention to: a statement from the man who manages MLPs at Tortoise Capital, Rob Thummel.

Thummel told Bloomberg that the recent sell-off has been driven by concerns about cash flow after the FERC announcement.

However, he noted that most pipelines are not regulated by that federal agency. Instead, U.S. markets are in charge of determining the rates.

Meanwhile, I expect that ETP will benefit from talks of increased infrastructure spending across the United States.

And analysts agree...

Over the next 12 months, Tudor Pickering Holt & Co. projects the ETP stock price will climb to $31 per share. From the April 5 price of $16.75, that's a potential profit of 85.07%.

Bloomberg Reports: "Trouble Is Brewing."

According to Bloomberg's latest report, America could be heading for an economic disaster that would rival the Great Recession.

Billionaire Ray Dalio's hedge fund, Bridgewater Associates, has made a $22 billion bet against the market.

And Citibank calls our present situation "eerily reminiscent of the mortgage crisis."

To see why we believe some of the richest players in the world are preparing for a market collapse, click here.

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About the Author

Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.

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