4 Stocks That May Win The U.S.-China Trade War

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4 Stocks That May Win The U.S.-China Trade War

There are a few equities that might benefit significantly from the continuing trade war between the United States and China, a battle that seems to have spawned mainly losers so far. Potential winners include telecom behemoths Ciena Corp. (CIEN), Nokia Corp. (NOK), Ericsson ADR (ERIC), and Adtran (ADTN), which are expected to see a surge in sales if the US government decides to bar Chinese tech behemoth Huawei Technologies from doing business with American firms, according to Barron’s.

Global telecom spending is increasing as cellular networks transition to 5G, internet transitions to 10G, and fiber-optic networks are improved. Removing Huawei from a big chunk of the market would benefit Western corporations, who provide competing goods that are often more costly. Meanwhile, three businesses that do a lot of business with Huawei are expected to be hammered, putting NeoPhotonics (NPTN), Lumentum Holdings (LITE), and II-VI (IIVI) in jeopardy. All three of Huawei’s suppliers’ stock values have already plummeted.

Huawei is a privately owned firm that is not publicly traded on any stock market.

4 Companies That Win IfHuawei Loses

·Nokia (CIEN)

·Ericsson (ERIC)

·Adtran (ADTN)

·Ciena (CIEN)

Source:Barron’s

The US Justice Department unveiled accusations against Huawei on Monday, including claims that the Chinese firm violated US sanctions against Iran and stole trade secrets from T-Mobile US (TMUS).The US has also officially demanded that Huawei CFO Meng Wanzhou be extradited from Canada.

Huawei’s Fiber-Optic Network Suppliers Suffer

MKM Partners thinks that the Chinese equipment manufacturer is now more likely than not barred from purchasing American components. This is terrible news for Huawei’s optical-components suppliers, who supply critical components for its fiber-optic network backbone. According to MKM managing director Michael Genovese, Huawei contributes for around 15% of the industry’s overall sales.

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The DOJ’s statement is especially difficult for firms like San Jose, Calif.-based NeoPhotonics, which relies on Huawei for more than 40% of its sales. Lumentum and II-VI, both located in the United States, derive more than 15% of their total income from the Shenzhen-based tech behemoth.

According to Barron’s, Chinese telecom equipment manufacturers are apparently pre-ordering excess inventories in anticipation of a purchase restriction.

“According to our inspections,” Genovese wrote in a report released Tuesday morning, “Huawei, ZTE, and FiberHome are actively increasing optical-component inventories.” “While the industry’s near-term earnings are expected to be positive, investors are unlikely to give Huawei much credit unless and until it is officially not blacklisted by the US as part of a trade deal and/or DOJ settlement.”

Huawei Competitors Could See Revenues Jump

Given Huawei’s dominance in the worldwide and US markets, its absence would allow rivals such as Huntsville, AL-based Adtran, whose stock has climbed roughly 5% this week, to win market share. Others expected to benefit from the prospective ban include Nokia and Ciena, whose shares have fallen more than 5% in five days, and Ericsson, whose price has been unchanged during the same time.

Genovese anticipates that next-generation 5G technology expenditure will help Scandinavian telecom operators gain momentum against Huawei in the next year.

“We anticipate Nokia and Ericsson to gain market in South Korea and Japan at the cost of Huawei in 2019, and to win considerable share in Europe in 2020 as 5G spreads throughout the continent,” stated the MKM Partners analyst.

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Finally, cutting Huawei off from US vendors may stymie the company’s expansion in China, where it provides equipment for 5G networks. Genovese predicts that China will lag behind South Korea and Japan in terms of constructing a countrywide 5G network in 2019. The prohibition may potentially push European 5G objectives back by up to two years, according to Genovese.

Looking Ahead

The threat of Huawei being barred from the US market may be one reason driving China to reach a trade agreement with Washington. Even if Huawei is not technically prohibited, the pressure on US, European, and other corporations to quit or decrease Huawei as a supplier may offer its rivals a flood of new business, raising earnings and share prices.

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