Edge Alert: How To Profit From Today’s Trade War
“Zach, what’s the best way to play the trade war tensions in today’s market?”
The question came from one of my Weekly Squawk Box subscribers during our call this week.
Every Wednesday morning, I sit down and host a conference call with subscribers to talk about the best opportunities in the market. We typically discuss the big picture and what’s driving markets higher or lower, we talk about opportunities in specific sectors and industries and then we zero in on one specific trade opportunity that is particularly timely.
One of my favorite parts of this weekly call is the chance to take questions.
This lets me know what’s on your mind as a subscriber and gives me a chance to share answers to your questions with everyone — so we all have a chance to benefit from the discussion.
(If you’d like to get more information about Zach’s Weekly Squawk Box, you can find out more here.)
The question on profiting from the trade war negotiations is especially timely and one that we have a special interest in here at The Daily Edge.
Today, I want to discuss my two favorite income plays that are setting up for some particularly attractive gains thanks to the trade war fears in the market right now.
When Will This Uncertainty End?
For most investors, the harsh talk between the Trump administration and our international trading partners has been considered a frustration.
That’s because every time the president makes an announcement about a new tariff or one of our trading partners hits back with a retaliation, the stock market tends to pull back.
No one likes to see the value of their investment turn lower.
But you may have noticed that each time the market gets knocked lower, buyers soon step in and help support prices. In the end, American stocks have been quite resilient and have not stayed lower for very long.
This is a testament to the very strong American economy and the higher profits that companies are generating. While investors are temporarily distracted by the trade war rhetoric, they eventually come back around to the idea of owning great companies that are generating reliable profits.
Now, with that in mind, consider what will happen once the trade disagreements finally start to get resolved.
We could soon see markets shoot higher simply because one of the major risks that investors have been worried about is being lifted while the strong trends that continue to support growth in the U.S. are still in play.
To get back to the original question of how to profit from the trade war, my recommendation is to buy stocks that will benefit most from a resolution…
Think of automakers like Ford (F) and General Motors (GM), who have been beaten down recently by trade fears.
The Trump administration has threatened higher tariffs on autos being shipped in from Europe. But what the media won’t tell you is that there are already duties being charged for cars exported to Europe.
Basically, the tit-for-tat trade agreements that have been structured over the last several decades have resulted in a giant tangled mess of trade restrictions. But now through some hardball negotiations, it looks like we have a chance at actually reducing the amount of trade restrictions in play and coming up with a fairer playing field.
Case in point…
Last week, leading German automakers sent a proposal to Washington that would effectively scrap the European Union’s 10% tax on auto imports to the U.S. in exchange for the Trump administration abandoning a proposed 25% border tax on European imports.
In other words, these automakers want to open the borders so automakers are free to sell cars and trucks to the consumers who want them.
This is great news for Ford and General Motors.
Both of these stocks pulled back earlier in the year thanks to concerns about a potential trade war. At the same time, both of these companies are generating reliable profits and paying lucrative dividend yields.
Ford currently pays a 60-cent quarterly dividend, which nets out to a 5.1% yield. And GM offers a $1.52 quarterly dividend, handing you a 3.6% yield.
Best of all, both stocks trade at very cheap multiples, which means you can buy shares for a very attractive price compared with the earnings that both companies generate. This is important because there is plenty of room for both Ford and GM to trade sharply higher when the public’s perception of their businesses changes.
And a resolution to the trade war disputes could be just the catalyst to get the stock prices moving.
Here’s to growing and protecting your wealth!