The United States and China agreed on a "phase one" trade deal this week.
The United States won't proceed with 15% tariffs on $160 billion of Chinese phones, laptops, toys, and clothing. And China won't enact 25% tariffs on U.S.-made cars.
Sounds like great news for Chinese consumer goods and U.S. auto manufacturers like Tesla Inc. (NASDAQ: TSLA) eyeing the Chinese market. But it's even better news for the U.S. energy sector.
In fact, one company expects to add more than $11 billion to its top line through a partnership with China National Petroleum Corporation, thanks to the terms of the deal. And that's our best stock to buy as the trade war resolves.
Here's why the trade war deal is good for energy firms, including the stock that could benefit the most from improved relations between the United States and China.
Who Benefits from the Trade War
A Reuters report said the phase one terms included China purchasing at least $200 billion worth of American goods over the next two years.
This is great news for our top energy stock, but not in the way you might think.
China's imports of liquefied natural gas (LNG) are expected to skyrocket to 88 million tons per year by 2025. That will be up from 38 billion tons in 2017, a 131% rise.
This country is the second-highest LNG consumer in the world. And it has already made a deal with an American supplier.
There was a 10% levy placed by China on U.S. LNG last year. And as trade war tensions escalated in the spring of 2019, it was reported that not a single LNG vessel traveled from the U.S. to China between March and April.
That's kept a lid on this stock, but with the trade war slowing down, this company could be in line for a big expansion in China.
It's also not relying solely on handshake purchase agreements to keep the Chinese market either. It's already got a foothold, and as the trade war subsides, it has plans to sink that foot deeper.
We've recently seen incentives for both sides to reach a deal. China's vulnerability has started to show as its economic growth has visibly stagnated in response to the events. It saw 6% growth at the end of the third quarter, the lowest since 1992.
And if we're headed towards a trade war resolution, this is the best energy stock to buy...
The Surprise Winner of the U.S.-China Trade Deal
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Shares of Cheniere Energy Inc. (NYSE: LNG) jumped 5% in the last five days as the United States and China closed a phase one deal. That's because it stands to gain the most in the long run if the United States and China can go beyond phase one.
Last year, Cheniere signed a 25-year contract to liquefied natural gas through China's largest state-owned producer, China National Petroleum Corp. It expects around $11 billion over that time.
More recently, in March of this year, China agreed to buy $18 billion of LNG from Cheniere, through its state-owned China Petroleum & Chemical Corp, or Sinopec. The deal allows Cheniere to go to Chinese state banks for financing, which may help the company lay some roots there.
This presents upside for any LNG producer. China's LNG imports are expected to grow to 88 million tons per year by 2025, according to the Macquarie Group.
While Cheniere already has a deal with China, China's commitment to purchasing $200 billion goods and services, including LNG, means Cheniere could see even more sales from China. Lowering tensions open up the potential for this company to continue deepening its connections in this country, which it is intent on doing.
Cheniere has increased revenue by 3,261% since 2015. And the company has grown revenue by an average of 130% for each year since 2016.
It is right on the verge of being profitable, and it's very likely 2020 is the year this happens.
The stock trades for $61.55 right now. It's poised to reach $89 - a gain of 44% - over the next year. But if the trade war continues to resolve, it's likely to gain an upgrade.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.