Trade Deficit Narrows In April: 5 Mega-Cap Stocks To Buy

The U.S. trade deficit, which has been the major reason for the ongoing tariff and trade war concerns, dropped for the second consecutive month in April. The deficit narrowed 2.1% to $46.2 billion from a revised $47.2 billion in March, marking the lowest level since September.

However, the trade deficit is still up 11.5% so far this year from the year-ago level, and is on track to widen in 2018 to the highest level in a decade.

Inside the Strong Numbers

The drop came on the heels of a 0.3% increase in exports to a record $211.2 billion, buoyed by higher shipments of industrial materials, soybeans and corn. Meanwhile, imports dipped 0.2% to $257.4 billion. Though trade deficit with Mexico narrowed 29.8% to $5.7 billion in April as exports to the country hit an all-time high, it widened with China by 8.1% to $28 billion. The United States had a $0.8 billion trade gap with Canada.

In the first four months of 2018, exports to Mexico, Canada and the European Union have recorded double-digit growth, indicating that United States is expanding strongly in these markets. As a result, the data has bolstered the confidence in the robust economic growth given that the recent decline in deficit is expected to boost GDP in the second quarter.

The rise in exports and shrinking trade gap will definitely benefit exporters, leading to a surge in mega-cap stocks.

Tariffs: A Threat?

Trump is going fierce with its anti-trade policies that could endanger the growth in exports seen so far in the year. He slapped tariffs on steel and aluminum imports from Canada, Mexico and the European Union last week after their temporary exemptions expired on Jun 1.

The move also led to retaliation from these countries targeting American products worth billions of dollars. The European Union is seeking to hit back with $7.5 billion of levies on U.S. exports, including motorcycles, denim, cigarettes, cranberry juice and peanut butter, as early as Jun 20. Mexico plans to retaliate by targeting a wide range of U.S. farm and industrial products and has said it would slap tariffs on imports from the United States, including whiskey, orange juice, steel, aluminum and other products.

A trade war is also brewing with China as Washington and Beijing have threatened tit-for-tat tariffs on goods worth up to $150 billion each in order to reduce the United States' $375.2 billion trade deficit with China. Talks to avert a full trade war between the world’s two largest economies have so far failed to produce a fruitful deal though China has offered up to purchase nearly $70 billion worth of U.S. agriculture and energy products if the Trump administration steps back from tariffs.

Why Mega Caps?

Mega-cap stocks (with a market cap of $100 billion or more) belong to the largest and most recognizable brands in the world. They tend to be the most stable in an adverse economic scenario while at the same time offer capital appreciation in a booming market. Mega-cap stocks have a global footprint, strong cash positions and enjoy leading market positions with most of them offering huge dividends.

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These stocks are less volatile compared to small caps and thus are well protected in a market downturn. However, they might not experience exponential growth as small caps do in a rising stock market.

5 Picks

Given this, we have highlighted top-ranked mega-cap stocks that pose solid fundamentals and have the potential to move higher in the coming days. All these have a Zacks Rank #1 (Strong Buy) and a VGM Score of A.

The Boeing Company (NYSE:BA)

This world's largest Zacks Rank #2 aerospace company is the leading manufacturer of commercial jetliners and defense, space and security systems. The stock has seen positive earnings estimate revision of 13 cents for this year over the past 30 days with an expected growth rate of 21.84%. It has a market cap of $209.8 billion and a VGM Score of B.

China Petroleum & Chemical Corporation (NYSE:SNP)

This Zacks Rank #1 joint-stock company is focused on its core business of petroleum and petrochemicals with integrated upstream, mid-stream and downstream operations and a complete marketing network. The stock has seen solid earnings estimate revision of 38 cents for this year over the past 30 days, with an expected growth rate of 62.84%. It has a market cap of $116.2 billion and a VGM Score of B. You can see Zacks Investment Research

Written By: Zacks Investment Research