Wall St Week Ahead-Trade protection doesn't have to exclude growth stocks

Kforce

27/05/2019 12:00

(Repeats story first published Friday with no changes to text)
    By Sinéad Carew
    May 24 (Reuters) - The escalating U.S.-China trade war has
sent dividend-rich sectors like utilities higher, but investors
don't need to get all defensive just yet, according to
strategists who say there are plenty of growth stocks with some
insulation from China. 
    Some investors are seeking safety in domestic U.S. growth
stocks ranging from software and online advertising to aerospace
and recruitment since President Donald Trump's May 5 tweets
showed that U.S. talks with China were in trouble. 
    While the prospect of a prolonged trade war has shaken the
market, investors are also trying to protect themselves from the
 risk that they could miss out on gains in the event that the
United States and China reach a surprise agreement.
    Because of the difficulty handicapping the chance of a
U.S.-China deal, John Praveen Portfolio Manager at QMA in
Newark, New Jersey, said he would not "completely sell out" of
stocks. But he said: "if I was 5% overweight stocks, I might
reduce it to 3 pct and see if I could reduce exposure to
semiconductors and technology."
    "If you're looking to avoid the pure dividend play and avoid
the China trade narrative, you have to look at stocks that are a
pure play on the U.S. economy," said Peter Kenny, founder,
Kenny’s Commentary LLC in New York. 
    Broadly speaking, investors have been raising their
defenses. While the S&P has fallen roughly 4% since Trump
announced his plan to raise tariffs on Chinese goods in early
May, utilities - a low-growth sector with reliably high
dividends - has risen more than 2%.
    But growth-hungry investors are seeking more nimble
companies with little exposure to overseas sales or Chinese
imports even in the beaten down technology sector, where
semiconductor stocks have lead the recent declines.  
    Online advertising platforms and cloud software are two
technology segments that would not be directly affected by China
tariffs, according to Daniel Morgan, portfolio manager at
Synovus Trust in Atlanta.
    In online advertising, Morgan favors Twitter  TWTR.N ,
Facebook  FB.O  and Snap Inc  SNAP.N  over Google parent
Alphabet  GOOGL.O , which suspended business with China's Huawei
this week as a result of the trade battle. 
    He also likes software providers such as Salesforce.com
 CRM.N , which derives 70% of its revenue from the Americas and
only 10% from Asia-Pacific. However, Salesforce.com has fallen
more than 5% since the Trump tweets. 
    Another option is Workday Inc  WDAY.O , which has risen
about 4% since May 5 and derives 75% of its revenue from the
United States. 
    Steve Lipper, senior investment strategist at Royce &
Associates favors U.S.-facing companies offering services such
as recruiting and merger advice due to a strong U.S. labor
market and solid merger activity.
     But while U.S.-facing recruitment firms such as Kforce
 KFRC.O  and ASGN Inc  ASGN.N  may not be hurt directly by the
trade war, Robert W. Baird analyst Mark Marcon notes that they
would suffer if tariffs caused the economy to weaken.   
     Instead, Marcon favors domestic payroll software companies
such as Automatic Data Processing Inc  ADP.O  and Paychex Inc
 PAYX.O , which tend to do better than recruiters in a downturn.
But even if their fundamentals remain strong, payroll companies
like Paycom  PAYC.N  and Paylocity  PCTY.O  could be vulnerable
in a selloff due to relatively high valuations, Marcon said.  
    In industrials - a sector with heavy exposure to China -
Burns McKinney, a portfolio manager at Allianz Global Investors
in Dallas likes defense stocks such as Raytheon  RTN.N  and
Lockheed Martin  LMT.N , which could benefit if U.S.-Iran
hostilities keep intensifying. 
    Since sectors like utilities have risen so much, Royce's
Lipper is favoring less obvious safe choices.
    "Be wary when the consensus view is already reflected in
valuations," said Lipper, but he added: "The U.S. economy is so
diverse that there are always areas that are insulated from
whatever you have a concern about."

 (Reporting By Sinéad Carew; Editing by Alden Bentley and Nick
Zieminski)
 ((sinead.carew@thomsonreuters.com; +1 (646) 223 6186; Reuters
Messaging: sinead.carew.thomsonreuters.com@reuters.net))
 
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