Bulls appear to be winning again. The U.S. stock market, after coming under pressure from the U.S.-China trade standoff, is regaining some momentum on hopes that the U.S. Federal Reserve is readying a possible rate cut to help avoid a recession if the trade war lingers and starts hurting the economy.
That positive development, coupled with the U.S. and Mexico agreeing to an immigration deal, may also add to the positive sentiment this week. President Trump announced late Friday that he wouldn’t impose tariffs on goods from Mexico — rising incrementally from 5% to 25% over time — after the country agreed to take a tougher stance on immigration.
For investors who want to focus on company-specific developments, here are our top three stocks:
1. Broadcom
The last chipmaker to report during this earnings season, Broadcom (NASDAQ:AVGO) is worth watching amid the China trade uncertainties. The company reports Q2 2019 numbers on Thursday, June 13, after the close. Consensus calls for $5.21 EPS on $5.69B in revenue.
With the majority of semiconductor companies exposed to the U.S.-China trade war, there's s a good chance that Broadcom will cut its earnings forecast for the remaining part of the year. Analysts are warning that the latest downturn in the industry will be prolonged and more painful.
The combination of 25% tariffs on Chinese goods, the U.S. blacklisting Huawei Technologies and China’s consequent retaliation, may freeze the industry supply chain, hurting companies like Broadcom. But despite the latest downturn in the semiconductor industry, Broadcom is one chip stock we like due to its diversified product lines and its highly attractive dividend yield of 4.1%.
These two strengths will help Broadcom weather the storm and rebound quickly if the U.S. and China reach a deal on trade. Its shares, which closed on Friday at $274.87, are up about 4% over the past three months.
2. Lululemon
The athletic apparel retailer, Lululemon Athletica (NASDAQ:LULU) reports its quarterly earnings Wednesday, June 12, after the bell. The market consensus is for $0.7 a share profit and $756 million in revenue.
There is hardly anything about this the maker of upscale yoga-wear that investors can complain about this year. It’s got a great product-mix which is resonating well with customers, improving store visits and same-store sales. Lululemon’s investments to improve its e-commerce channels are also paying off, as its online penetration reached 26%, with some analysts, including Cowen, Inc., calling management’s execution “near flawless” and Morgan Stanley which said the company was “firing on all cylinders.”
Shares also reflect this upbeat outlook, rising 43% this year, massively outperforming the S&P 500. They closed at $172.49 on Friday, near the 52-week high. The stock had surged 16% when the company topped the Q4 earnings forecasts in March.
3. United Technologies
United Technologies (NYSE:UTX) and Raytheon (NYSE:RTN) are in talks about merging their operations in a deal that would create an aerospace and defense industry giant, according to media reports over the weekend.
The all-stock transaction could be announced in the coming days, according to the Wall Street Journal. United Technologies has a market valuation of about $114 billion, while Raytheon is valued at about $52 billion.
A deal with Raytheon would extend the transformation of United Technologies under Chief Executive Officer Greg Hayes, who is already planning to spin off the company’s Carrier climate-controls and Otis elevator operations. Said Douglas Rothacker, an aerospace/autos analyst at Bloomberg Intelligence:
“Combining United Technologies’ aerospace business, which is expected to generate $50 billion in revenue in 2020, and Raytheon’s $30 billion would create the second-biggest western aerospace defense company.”
It’s not clear, however, how the market will absorb this news and the challenges that will come with the combined entities, especially when there is so much on the plate for Hayes who is in the middle of the company restructuring.
UTX stock closed at $132.15 on Friday, gaining more than 25% this year.