Trade talks between the two largest economies in the world ended on Friday without a deal. Wall Street is now braced for a fully fledged trade war between the U.S. and China, as President Donald Trump announced the raising of tariffs on $200 billion worth of imports from China.
Friday’s move comes just weeks after President Trump predicted a signing ceremony with President Xi Jinping of China on an "epic" trade deal. Underlined by a series of provocative tweets on Friday morning, Trump signaled he was prepared for a long and tense economic fight.
While both parties have indicated there will be future discussions, Trump’s decision to move ahead with plans to impose 25% tariffs on all Chinese imports has sent shockwaves of fear around the world. No one really wants a trade war, especially between the two largest economies. On news of the breakdown on talks, the S&P 500 immediately sank more than 1% before regaining some ground. However, some companies should fear a trade war more than others. Here are two stocks to watch and avoid during a U.S.-China trade war.
The biggest questions are being asked about U.S. multinational companies with more than 50% of their revenue dependent upon China. Two obvious examples of companies whose revenues are tied to China are Wynn Resorts (WYNN, Financial) and Apple Inc. (AAPL, Financial).
Wynn Resorts (WYNN, Financial)
When news of the trade escalation broke, Wynn Resorts stock plummeted nearly 5%. Why? Because 75% of Wynn Resorts revenue derives from Macau and other areas within the Asian region. Founded in 2002 and headquartered in the home of gambling, Las Vegas, Wynn Resorts has bet heavily on China. Despite reporting a return to profit for the first quarter and seeing both earnings and revenues surpass analysts expectations, a trade war with China would be disastrous for a company already suffering from a 4% drop in operating revenue.
From all the casino operators, Wynn Resorts is probably the most exposed in China. 2018 saw its shares decline 33.6%. Operating revenue from Wynn Macau fell 15.3% year-over-year in the first quarter. Meanwhile, adjusted property Ebitda slumped 21.9%.
Any trade war between the U.S. and China will hit an already fragile Wynn Resorts. The stock is currently priced at $129.89, closing down 4.72% on Friday with more declines predicted. Avoid.
Tech giant Apple has a great deal of exposure to China. More than 20% of its revenues are derive from the world’s second largest economy. Trump’s plan to increase tariffs by 25% would make the China-built iPhone more expensive, with the iPhone XS increasing in price by $160. This would be a disaster for Apple, which is already experiencing a slowdown in global iPhone sales. Fears that iPhone sales have peaked will not be soothed with a 25% price increase. Worrying for Apple is the fact that iPhone sales constituted 61.6% of Apple Inc.’s revenue in the latest fiscal year.
Any further slowdown in sales for Apple’s flagship product could see Apple stock hit hard. Currently priced at $197.18, Apple closed 1.39% lower on Friday as investors muse the reality of what a trade war with China means for Apple.
Disclosure: The author has no stake in the listed equities.
