Investing

Worried About China Trade Issues? 5 Stocks to Buy With Zero Exposure

Lee Jackson

Published: May 7, 2019 6:40 am

Last Updated: January 30, 2020 9:06 pm

Back when Saturday Night Live was in its heyday, and arguably actually funny, the late and great Gilda Radner played a character called Rosanne Rosannadanna, who would lament on current situations both locally and nationally, and her go-to phrase was “It’s always something.” That could easily be a Wall Street slogan, as long-time investors are well aware of that and were reminded this week after the president unleashed a tweet that threatened to upend trade talks with China.

The president reportedly has become frustrated with the Chinese on trade talks, especially concerning the critical areas of information technology and intellectual property, as well as protection of foreign technology. These are valid concerns, but with a large trade contingent on its way to the United States from China, the deal is certainly not off.

One thing is for sure, investors concerned over the potential fallout may want to move to stocks with very little or no exposure to China. We found five that make sense now, and all are rated Buy at Merrill Lynch.

AT&T

This is a telecom component on the prestigious Merrill Lynch US 1 list. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE.

This telecom giant also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions. Trading at a very cheap 9.4 times estimated 2019 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.

The company reported a mixed bag for the first quarter and the Merrill team said this:

On a consolidated basis, first quarter revenue, EBITDA, and EPS were all pretty much in line with consensus estimates. Entertainment EBITDA was ahead of both us and the Street, as AT&T was able to bend the cost curve and drive up video average revenue per user. Due to definitional changes, AT&T’s implied capex guidance is $20 billion and not $22 billion where the Street consensus is today.

Investors receive a 6.67% dividend. The Merrill price target for the shares is $37, and the Wall Street consensus target is $33.88. Shares ended trading on Monday at $30.59.

Allegiant Travel

This low-cost carrier flies to many cities, but none of those destinations are in China. Allegiant Travel Co. (NASDAQ: ALGT) has a unique business strategy: flying where other airlines do not. The company connects 136 city-pairs and typically flies each leisure route only a few times a week, using older planes with low capital costs. An early unbundler, the company generates more fees per passenger than any U.S. airline. Allegiant’s largest market is Las Vegas, followed by Orlando and Phoenix.

Because of the hefty recurring fees the company generates, Merrill has remained positive on the shares and noted this when the company reported results:

Despite raising its full year fuel outlook by 5-10%, Allegiant Travel managed to reiterate its 2019 EPS outlook of $13.25-14.75. With no changes to the 2019 unit cost outlook, we believe this points to solid revenue momentum in the core airline business. We are raising our 2019E EPS to $13.25, and our price objective. We reiterate our Buy rating.

Merrill Lynch has a $146 price target, which is surprising given the $157 consensus target. The stock was last seen trading at $147.09.

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American Electric Power

This industry-leading utility is also a solid dividend-paying company. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.4 million customers in 11 states. It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

Many on Wall Street feel that the stock trades at a discount to its utility peers, and they feel it deserves a premium. Top analysts also think the company may sell generating assets and buy back shares with the proceeds, which would be also accretive.

AEP shareholders receive a 3.16% dividend. The $93 Merrill price target is higher than the $84.19 consensus target. Shares closed most recently at $84.83.

Jack in the Box

This top fast-food offering for investors to consider also has zero Chinese exposure. Jack in the Box Inc. (NASDAQ: JACK) operates and franchises Jack in the Box restaurants, one of the nation’s largest hamburger chains, with more than 2,200 restaurants in 21 states and Guam. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Eats, a leader in fast-casual dining, with more than 600 restaurants in 47 states, the District of Columbia and Canada.

Jack in the Box reported in late February fiscal first-quarter operating EPS above the consensus estimates, with lower selling, general and administrative expenses and tax rate driving the beat. Comparison sales tracked down 1% to 2% in the first seven weeks of the quarter but inflected after the company pivoted to a more value-oriented strategy.

Shareholders receive a 2.04% dividend. Merrill’s price objective is $94. The consensus target price is $91, and shares closed at $78.28 on Monday.

Kroger

This top grocer does almost all of its business in the United States. Kroger Co. (NYSE: KR) is the second largest U.S. food supermarket retailer and generates $120 billion in annual sales. Kroger operates roughly 2,800 supermarkets throughout 35 states and under two dozen banners. Kroger also sells fuel at 1,450 supermarket fuel centers and operates 2,268 pharmacies and 274 jewelry stores.

The stock remains very cheap, as Kroger has a market cap of under $21 billion despite massive sales each year. 2018 sales decreased 1.2% to $121.2 billion, but when excluding fuel, an extra week in 2017, the company’s convenience store business unit divestiture and the impact of a merger with meal-kit company Home Chef, total sales during the year were up 2.0%. This is slightly lower than the company’s adjusted sales growth of 2.2% in 2017.

Kroger shareholders receive a 2.19% dividend. Merrill has set its price target at $37. The consensus target is $28.26, and shares closed at $25.71.

There is a very good chance the president is bluffing to some degree, as a trade deal with China is something that is absolutely critical, as the United States is a huge buyer of the imported goods the People’s Republic. If tariffs are lifted even higher than the current percentages, it could put a huge dent in the Chinese economy.

In any event, these five stocks rated Buy have zero exposure, for the most part, in China, and they offer a degree of safety for investors worried over the potential for an all-out trade war.