Why A Turn-Around In China Could Be Very Good News For These 10 Stocks

Apple CEO Tim Cook believes Chinese stimulus programs are working. If he’s right, these 10 stocks could see a boost.

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During Apple’s (NASDAQ: AAPL) earnings call, CEO Tim Cook noted that Chinese stimulus programs, including the value-added tax reduction, helped to revive the company’s slowing business in China.

“The one that got the most visibility that happened in early April was the [value-added tax] reduction from 16% to 13%, so it was a very aggressive move,” Cook said. “But there are other stimulus programs as well that likely have an effect at the consumer level.”

China suffered its slowest economic growth since 1990 in 2018, forcing the government to inject a series of fiscal and monetary stimulus measures into the economy. One such measure was a $300 billion tax cut for companies in the manufacturing, transportation, and construction sectors. 

Cook also pointed out that such stimulus programs and the “improved trade dialogue” between the U.S. and China helped to improve consumer confidence.

“I believe that the trade relationship—I don’t mean the tariff, I mean the tone—is much better today than it was in the November-December time frame,” Cook said in an interview with CNBC. “That affects consumer confidence in a positive way.”

“There’s an improved trade dialogue between the U.S. and China, and from our point of view, this has affected consumer confidence on the ground there in a positive way,” Cook said. “And so I think it’s a set of all of these things, and we certainly feel a lot better than we did 90 days ago.”

Apple said that its Q3 revenue could rise to $54.5 billion partly thanks to improved conditions in China. That’s a far cry from January when Apple cut its revenue guidance amid slowing iPhone sales in the country.

Just as Apple’s business in China has made a U-turn thanks to the Chinese government’s stimulus programs, there are other companies in the U.S. with a large presence in China that could also see a boost if the Apple CEO is right.

Other U.S.-based companies with high China revenue exposure include semiconductor Skyworks Solutions (NASDAQ: SWKS) with 83% revenue exposure, Wynn Resorts (NASDAQ: WYNN) with 73% exposure, Qualcomm (NASDAQ: QCOM) with 65% exposure, Broadcom (NASDAQ: AVGO) with 54%, Micron (NASDAQ: MU) with 51%, Advanced Micro Devices (NASDAQ: AMD) with 33%, Intel (NASDAQ: INTC) with 24%, Western Digital (NASDAQ: WDC) with 22%, and Nvidia (NASDAQ: NVDA) with 20% revenue exposure to China.

These stocks will likely see a pop if, like Apple, their performance in China improves. 

Skyworks, an Apple supplier, lowered its guidance for the year back in January citing growing weakness in the smartphone market. The company released its earnings Thursday and beat quarterly earnings estimates of $1.43, posting earnings of $1.47 per share, and beat on revenue earning $810.43 compared to analyst estimates of $810.03.

Qualcomm recently sparked headlines after resolving its patent disputes with Apple, sending its stock soaring nearly 25% in a single day. The stock reported earnings on Wednesday, beating earnings and revenue estimates, though the company’s guidance failed to meet expectations.

Qualcomm reported Q2 revenue of $4.9 billion on earnings of $0.77 per share, while analysts were projecting revenue of $4.8 billion on earnings of $0.71 per share.

“We delivered a better than expected quarter with earnings per share above the high end of our estimates, reflecting stronger QTL results and solid execution in QTC,” Steve Mollenkopf, CEO of Qualcomm, said. “We are pleased to have reached multi-year agreements with Apple and look forward to continuing to support them as a customer. We are executing well on our strategic priorities as 5G commercial launches begin around the world.”

“Our 5G technology and product leadership, as well as our expansion into new industries and product categories, creates a strong foundation for long-term revenue and earnings growth,” Mollenkopf said.

Like Tim Cook, many big names—including BlackRock CEO Larry Fink and Goldman Sachs CEO David Solomon—agree that the Chinese stimulus programs have been paying off which could send those stocks with significant revenue exposure to China climbing higher.

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