Though the relationship the United States has with China is somewhat fractured these days, top U.S. companies continue to do business there due to the massive purchasing power of the Chinese consumer. That purchasing power may even increase as the country finally returns to normal after a long and difficult bout with COVID-19.
In a new Jefferies research report, the quantitative team points out that while the S&P 500 is up 8% this year, five stocks have accounted for a stunning 60% of the index returns, and only 32% of the 500 stocks are outperforming the index, a level not seen since 1999. Given the growing fear of recession, as indicated by the ongoing inversion of the two-year Treasury note and the 10-year paper, the team is looking for stocks with wide structural moats that can survive a downturn in the domestic economy.
They noted this in the research report about current investment trends:
Value has firmly fallen out of favor amid the slow build-up of the US economic downcycle. As investors move from cyclicals to structural moats, market breadth has narrowed sharply. The demand for moats should only grow as the economy slows, and hence quality at a reasonable price and low volume remain key focus areas. Also, stocks with high China revenue exposure should have more upside given the growing desire to access China’s recovery through non-China stocks.
The following five top stocks were selected by the analysts, and all make sense for investors looking to take advantage of China’s reopening without buying companies that are based there. While these stocks are Buy rated at Jefferies, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Apple
It is almost hard to comprehend that this legacy technology giant makes up a stunning 39% of Warren Buffett’s Berkshire Hathaway portfolio. Apple Inc. (NASDAQ: AAPL) designs, manufactures and markets consumer electronics and computers, and it has developed its own proprietary iOS and Mac OS X operating systems and related software platform/ecosystem.
Revenues are principally derived from the iPhone line of smartphones, the Macintosh family of notebook and desktop computers, iPad tablets, iPod portable digital music players, and the Apple Watch. The company also realizes revenue from software, peripherals, digital media and services. The technology giant consistently has churned out new products, and the ongoing stream of new offerings continues to garner more consumer approval.
Shareholders receive a 0.56% dividend. Jeffries has a $195 price target on Apple stock. The $168.21 consensus price target is lower and close to the closing share price on Thursday of $168.41.
Estee Lauder
Consumers have used this company’s products since the 1940s, and the company continues to have huge overseas and China exposure. Estee Lauder Companies Inc. (NYSE: EL) manufactures, markets and sells skincare, makeup, fragrance and hair care products worldwide.
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