On the heels of the U.S. and China reaching phase one of a substantial trade agreement between the two countries, three U.S. companies with strong profitability and business predictability according to the All-in-One Screener, a major GuruFocus Premium feature, as of Oct. 11 were Nvidia Corp. (NVDA, Financial), Micron Technology Inc. (MU, Financial) and Edwards Lifesciences Corp. (EW, Financial). Likewise, three Chinese companies with strong profitability and business predictability were Anhui Conch Cement Co. Ltd. (SHSE:600585, Financial), Shanghai International Airport Co. Ltd. (SHSE:600009) and Anhui Gujing Distillery Co. Ltd. (SZSE:000596).
Dow soars on U.S.-China trade agreement
On Friday, the Dow Jones Industrial Average closed at 26,816.59, up 319.92 points from Thursday’s close of 26,496.67. Apple Inc. (AAPL, Financial), the top holding of Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial), closed at $236.21, a new all-time high.
President Donald Trump said in a series of tweets that “good things” occurred during the day, including “warmer feelings than in recent past.” Trump further said the U.S.-China trade agreement did not require congressional approval.
Trump later said that the first phase of the trade negotiations included agreements in which China will purchase between $40 million and $50 million worth of U.S. agriculture products as well as other foreign exchange issues. Further, Trump agreed to hold off the 5% tariff hike on $250 billion worth of Chinese goods that were initially due to take effect on Oct. 1, but delayed to Oct. 15 as a “gesture of good will” considering China’s 70th anniversary. Such comments propelled the Dow to an intraday high of 27,013.97, 517.30 points higher than the previous close.
Despite this, the Dow pared gains into the close following U.S. Trade Representative Robert Lighthizer’s comments that no decision has been made regarding the tariffs due to take effect on Dec. 15.
U.S. market remains overvalued, but China market remains undervalued
The Oracle of Omaha’s favorite market indicator shows that while the U.S. stock market remains overvalued, the China stock market remains undervalued. As of Friday, the total market cap to gross domestic product ratio for the U.S. was 139.4%, approximately 9.1% off its all-time high of 148.5%. On the other hand, the market cap to GDP ratio for China was just 41%, approximately 7% off the historical low of 35%.
NVIDIA
Santa Clara, California-based Nvidia designs graphic chips that enhance the experience on computing platforms. The company’s chips are used in a wide range of end markets, which include high-end personal computers, gaming, data centers and auto infotainment systems.
GuruFocus ranks Nvidia’s financial strength 8 out of 10 on several positive investing signs, which include a robust Altman Z-score of 18.38 and strong interest coverage of 41.47.
NVIDIA’s profitability ranks 9 out of 10 on the heels of expanding profit margins and a return on equity that outperforms 94.41% of global competitors. Gurus riding the company’s strong profitability include PRIMECAP Management (Trades, Portfolio), Spiros Segalas (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).
Micron Technology
Shares of Micron Technology, a major holding in Mohnish Pabrai (Trades, Portfolio)’s U.S. portfolio, closed at $45.10, up 4.21% from the previous close of $43.28
The Boise, Idaho-based company provides dynamic random-access memory chips for personal computers and servers. GuruFocus ranks Micron Technology’s financial strength 8 out of 10 on several positive investing signs, which include a strong Altman Z-score of 3.57 and an interest coverage ratio that outperforms 63.42% of global competitors.
Micron’s profitability ranks 9 out of 10 on the heels of operating margins increasing approximately 25% per year on average over the past five years and outperforming 95.81% of global competitors.
Edwards Lifesciences
Edwards Lifesciences, a Baxter Inc. (BAX, Financial) spinoff, designs and manufactures a range of medical devices and equipment for advanced stages of heart disease. GuruFocus ranks the company’s financial strength 8 out of 10: Interest coverage ratios are outperforming 80.25% of global competitors even though debt ratios are outperforming just over 56% of global peers.
Edwards Lifesciences’ profitability ranks a perfect 10 out of 10 on the heels of profit margins and returns outperforming over 90% of global competitors. Operating margins have increased approximately 6.50% per year on average over the past five years and are near a 10-year high of 29.57%.
Anhui Conch Cement
Anhui Conch Cement produces regular grey and white Portland cement, which is used in infrastructure and residential construction, and oil well Portland cement and sulfate resistance cement, which is used in the petroleum drilling and food processing industries.
GuruFocus ranks the company’s financial strength and profitability 9 out of 10 on several positive investing signs, which include robust interest coverage, a high Piotroski F-score of 7, a strong Altman Z-score of 7.89, a 4.5-star business predictability rank and operating margins that are outperforming 26.65% of global competitors.
Shanghai International Airport
Shanghai International Airport operates two airports: Pudong Airport and Hongqiao Airport. The company’s principal activities include ground handling services for domestic and foreign airlines.
GuruFocus ranks the company’s profitability 10 out of 10 on several positive investing signs, which include a strong Piotroski F-score of 8, a five-star business predictability rank and operating margins that are near a 10-year high and outperform 97.56% of global competitors.
Anhui Gujing Distillery
Anhui Gujing Distillery operates in three business segments: Distilled Spirits, Hotel Services and Other. The company primarily manufactures liquor and distributes it in mainland China and beyond.
GuruFocus ranks the company’s financial strength and profitability 9 out of 10 on several positive investing signs, which include robust interest coverage, consistent revenue growth and operating margins that are near a 10-year high of 26.49% and outperform 87.06% of global competitors.
Disclosure: No positions.
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