These days, there seems to be no shortage of bad news.
The second wave of infections, record-high unemployment, bankruptcies, etc.
And as if that wasn’t enough, we now have the deteriorating U.S.-China relations to deal with.
What began as a war of words on who was to blame for the coronavirus pandemic, has now escalated into actions.
President Trump recently extended the ban on the Chinese technology giant Huawei.
Moreover, the White House has stated that they are likely to impose more sanctions on China if it passes the Hong Kong national security law.
Naturally, Beijing is not comfortable with those measures, and rumors are emerging that the Communist Party is planning to retaliate.
In particular, they’re looking to put American tech giants on the so-called “unreliable entity list.”
The list consists of foreign companies that are not obeying market rules, are violating contracts, or are disrupting supply chains for non-commercial reasons.
This definition, to me, is absurd given how many Chinese firms fit the description.
But the point is, there are many U.S. corporations doing business in China that are probably going to find themselves on that list.
Here are three that they’re most likely to target:
Apple—Sky High Valuation And Mounting Uncertainty
China’s rising middle-class population has been a critical driver for Apple’s business, especially the iPhone.
Should Beijing put the tech company on the ban list, it could lose 15% of its revenues.
This alone poses a substantial risk to its share price, but the trade war could affect its earnings in another way.
If companies really start bringing supply chains back home from countries like China, this will significantly increase their manufacturing costs and lower the profit margins… and the iPhone producer is no exception to that.
With Apple’s stock (NASDAQ: AAPL) trading 2.5% from its all-time highs, this risk is not being reflected in the price, and that worries me.
Qualcomm—Soon To Lose Huawei As A Customer
The next company that will most likely land on the list is Qualcomm (NASDAQ: QCOM).
At 65%, the tech giant earns even more revenues in China than Apple, so a ban would hurt its stock even more.
And this comes on top of the already challenging landscape the company is facing.
Qualcomm has been waging a technology war with the Shenzen-based HiSilicon over who can create better smartphone chips for years, and the Chinese are finally catching up.
This means that Qualcomm will soon lose one of its largest clients—HiSilicon’s owner Huawei.
Given these factors, I think the downside risk is too high, and that you should avoid this stock for now.
Boeing—A Buying Opportunity
Finally, there’s Boeing (NYSE: BA).
The company has been a focal point of the U.S.-China talks since the trade war first started.
Washington wants concessions that Beijing will buy a certain number of planes every year, while the Chinese are threatening to ban Boeing every time the relationship escalates.
While I see the latter outcome more probable, I think it won’t affect Boeing’s share price that much.
First, China represents less than 10% of all sales. And second, the stock is already trading low because of the coronavirus crisis.
In fact, I recommend you use this opportunity to buy Boeing should the price decline below $120.