5 Agriculture Stocks That Could Withstand A Trade War With China

The equity universe is rife with apprehensions regarding the possibility of a full-blown trade war between the United States and China. Though the hopes of conflict resolution propelled the benchmarks north on Monday, the final outcome of the scenario still remains indiscernible.

In fact, China has taken an aggressive stance against Trump's $60 billion tariff implementation. The strong retaliatory methods that China wants to adopt include levying $3 billion tariffs on fruits, nuts, pork and other agricultural products imported from the United States.

The ripple effect of these signaled trade restrictions to the prime export market of agricultural products were evident from the anxieties among the American farmers.

U.S. Agriculture: Clear & Obvious Target

Exports have altered the U.S. farm economy in the recent decades, as investments on massive livestock operations, high-yield seeds and more resourceful logistics has made American farmers the prime suppler of foodstuff globally.

However, China is the biggest export market of U.S. agriculture products. Soybean shipments to China was more than a third of the aggregate U.S. yield in 2017. China is the largest meat consumer in the world and it imported nearly 309,000 metric tons of pork from the United States in 2017. Beijing is also regarded as the second-best export market for U.S. cotton after Vietnam.  

American agriculture is one industry that stands to suffer the most in the ongoing U.S.-China trade war.

Under the $3 billion proposed tariff plan, China would be imposing 15% tariff on 120 product-lines of U.S. imports valuing roughly $1 billion; counting products like wine, fruit, steep pipes, and ethanol. Moreover, a second group of eight categories worth $2 billion, including pork and recycled aluminum, would be liable to a 25% tariff.

Lean-hog future prices had dipped over 4% on Friday on fears of 25% tariff over U.S. pork by China. News of fresh tariff program has spread anxiety across the U.S. farm belt. The U.S. Department of Agriculture predicts that its farm income this year will slide to the lowest level since 2006.

Endurance Stocks Amid the Trade War

We have zeroed in on five bullish U.S. agriculture stocks that are likely to withstand the volatile times.

These companies have a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy), recorded a positive average earnings surprise in the last four quarters and performed better than the industry over the last three months. Notably, the Zacks Consensus Estimate for these stocks has been revised upward for the current year over the last 60 days for 2018 and also showcases positive earnings per share growth for 2019.

Let's dig a little deep into these five hot picks to get a fair idea of their individual skill sets.

The Andersons, Inc. ANDE is a premium U.S. agricultural company that operates in the ethanol, grain, plant nutrient, and rail sectors globally. The company currently sports a Zacks Rank #1. It has pulled off a positive average earnings surprise of 0.62% in the last four quarters. Notably, the Zacks Consensus Estimate for the stock has moved north 19% to $1.94 for 2018 and its projected EPS growth for 2019 are currently pegged at 21.4%.

New growth opportunities in the value-added nutrient sector, favorable climatic conditions in the new crop year along with ongoing productivity and cost-saving efforts is likely to reinforce the company's profitability going forward. Moreover, reduced U.S. corporate tax rates will also aid in strengthening near-term bottom-line performance.

Archer-Daniels-Midland Company ADM secures, stores, processes, transports and merchandises agricultural products in the United States and other overseas end-markets. The company currently sports a Zacks Rank #1. It has delivered a positive average earnings surprise of 1.74% in the last four quarters. Notably, the Zacks Consensus Estimate for the stock has moved north 4.8% to $2.86 for 2018 and its projected EPS growth for 2019 is currently pegged at 6.4%.

Improved sales of oilseeds, disciplined cost management, enhanced innovation and stronger productivity is expected to drive the company's profitability going forward.

Tyson Foods, Inc. TSN is a U.S.-based renowned multinational food company. It currently has a Zacks Rank #1 and delivered a positive average earnings surprise of 4.69% in the last four quarters. Notably, the Zacks Consensus Estimate for the stock has moved north 14.3% to $6.65 for fiscal 2018 (ending September 2018) and its projected EPS growth for fiscal 2019 (ending September 2019) is currently pegged at 5%.

Stronger sales of protein-packed brands, synergies secured from the AdvancePierre' buyout (June 2017) and gains from tax savings are anticipated to bolster the company's profitability in the quarters ahead.

Industrias Bachoco, S.A.B. de C.V. IBA and its subsidiaries is a premium poultry producer of the United States and Mexico. The company currently sports a Zacks Rank #1. It has pulled off a positive average earnings surprise of 141.94% in the last four quarters. Notably, the Zacks Consensus Estimate for the stock has moved north 38.5% to $4.35 for 2018 and its projected EPS growth for 2019 is currently pegged at 8.5%.

The company is poised to boost near-term profits on the back of stronger sales, increased investments in growth oriented projects and new acquisitions.

Pilgrim's Pride Corporation PPC produces, processes, markets and distributes frozen and fresh chicken products in the United States, Mexico and the U.K. The company presently carries a Zacks Rank #2. It has pulled off a positive average earnings surprise of 8.62% in the last four quarters. Notably, the Zacks Consensus Estimate for the stock has moved north 5.1% to $3.07 for 2018 and its projected EPS growth for 2019 is currently pegged at 1.2%

Ongoing portfolio strategy, GNP Company (January 2017) acquisition and Moy Park (September 2017) buyout as well as stronger sales from Mexico and new European operations are likely to drive the company's earnings growth in the coming quarters.

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