The Trade War is Creating Long-Term Opportunities

With the trade war raging out of control, big stocks have taken big hits.

For example, investors are finding opportunity in U.S. stocks impacted by the Trump Administration’s blacklist.  Reportedly, any company on the list is now barred from buying U.S. products, or from importing U.S. technologies.  

The “entity List identifies persons or organizations reasonably believed to be involved, or to pose a significant risk of being or becoming involved in activities contrary to the national security or foreign policy interests of the United States. The EAR [Export Administration Regulations] imposes additional license requirements on, and limits the availability of most license exceptions for, exports, re-exports, and transfers (in-country) to listed entities,” as noted in this note from the U.S. Department of Commerce.

Some investors view this as nothing more than more pressure on China to bend.

At the same time, some investors view impacted stocks as eventual “blood in the streets” opportunities, including Ambarella (AMBA).

AMBA fell after one of its key customers – Hikvision – was blacklisted.  As one of the 28 companies the Commerce Department added to the Entity List, this move from the U.S. restricts the company’s ability to do business with American firms, says CNBC.  At the moment, AMBA is a falling knife, gapping from $57.50 to $50 on the news so far. Eventually, investors believe this will give way to opportunity on oversold conditions.

Even shares of AMD have been pulled lower because the trade ban could impact sales of graphic processing units (GPUs) to Chinese customers.  However, “We think the exposure is limited from a data center perspective at about 2% (or less) of total data center revenue,” says RBC Capital Markets.

Eventually, the trade war could lead to quite a few opportunities.

However, until we near a definite finale to the war, related stocks could drop further.

It’s all a wait and see at this point. Stay tuned for more.