Watch These Stocks On A US-China Trade Deal

The United States and China have had ongoing negotiations on trade for what has seemed like years at this point.  Both countries have threatened and enacted tariffs on each other, which have had negative effects on corporate earnings, and uncertainty pertaining to future guidance.  Investors have been whipsawed by the positive headlines about progress in the negotiations one-day leading stocks higher, then lack of progress the next week leading stocks lower. 

When the US and China come to some form of agreement, there will be companies that could benefit from a trade deal.  Caterpillar (Ticker Symbol: CAT) the industrials giant, and Dollar Tree,(Ticker Symbol: DLTRWealth Strength IndexDLTR is Extremely Flat and trending Down) the discount goods store, could be poised to benefit from a trade deal with China.  Dollar Tree sources the majority of its goods from China and Caterpiller would benefit from the increased demand for its machinery due to China’s rapid growth.

Caterpillar stock ticked to an all-time high early in the first quarter of 2018 at $173.24.  The stock got a little ahead of itself and pulled back over $60.00 dollars, coming back to more realistic valuations.  Caterpillar found a temporary bottom in the third quarter of 2018 while having the most oversold rating in the Relative Strength Index it has seen in three years. (indicated by the purple boxes on the chart)  The stock is currently finding support around the 100-day Moving Average around $130.25. A move above the 200-day Moving Average around $136.00 and this year’s highs above $143.00 could give Caterpillar some momentum to move higher.   

(Chart above courtesy of ​www.tipranks.com​)  

Based on a survey of 18 analysts offering 12-month price targets, the average price target for Caterpillar’s stock is $149.71.  According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near  $132.37.

Dollar Tree’s stock took off to the races in July of 2017, led by great earnings and good guidance, rallying over 75% before peaking at its all-time high of $116.65.  The stock pulled back and consolidated most of 2018, forming a rounded bottom, finding support around the $80.00 price level. Dollar Tree finally came back to life at the beginning of 2019, breaking above its downtrend it began and its peak in 2018.  The stock then reclaimed the 100 and 200-day Moving Averages and has since had a positive momentum for the year rallying over 15%.

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(Chart above courtesy of ​www.tipranks.com​)  

Based on a survey of 15 analysts offering 12-month price targets, the average price target for Dollar Tree’s stock is $109.86.  According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near  $103.47

The tariffs that are in place are hindering both companies from reaching their earnings potential.  Steven Roach, one of the world’s leading authorities on Asia, told CNBC that he expects a trade deal will get done. Dollar Tree and Caterpillar seem to be ready to make a move if the trade deal gets done.

 


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