This weekend the big market news came from Argentina, where US President Donald Trump met with Chinese President Xi Jinping Saturday night.

The two leaders discussed trade policy, an important matter as the two countries – the world’s first and second largest economies – are widely seen as blundering their way into a trade war.

Following the meeting President Trump tweeted, “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%.”

However, spokesmen from both governments since claimed that nothing so comprehensive was finalized. Apparently what both leaders had agreed to Saturday evening was a halt to tariff escalation and the temporary cancellation of planned increases scheduled for January 1, 2019 while trade negotiations continue for another 90 days.

According to the White House, the US and China agreed to “immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft.” This was backed up in essentials by Chinese Foreign Minister Wang Yi, who told reporters that “the principal agreement has effectively prevented further expansion of economic friction between the two countries.”

Stock Markets Rally

After word broke of the agreement between the US and Chinese leaders, market futures began surging. Current indications suggest 500+ point boost for the Dow Jones at Monday’s opening bell, and a 170-point gain for the Nasdaq.

Market performance in Asia and Europe indicates that Wall Street’s projected gains will likely materialize. Tokyo’s Nikkei 225 gained 1% for the day, while both the Hang Seng and Shanghai composite gained 2.5%. In Europe, as the trading began, the FTSE 100 was up 139 points by mid-morning Monday, while Germany’s DAX added 268 points.

Notably automotive stocks, which are sensitive to tariff barriers on both the raw material and finished product ends, led the gains.

Stocks with China Exposure Stand to Gain

So is all of this a positive development? Of course – it is always better when governments talk through their differences. The 90-day delay of planned tariffs gives import/export dependent companies a short reprieve, while the immediate boost in stock markets gives both governments a direct incentive to continue talking.

In the short run, since the Trump/Xi meetings, companies such as General Motors Company (GM), Caterpillar, Inc. (CAT), Boeing Company (BA), and Apple, Inc. (AAPL) have all seen positive bumps in their share price.

General Motors Company (GM – Research Report)

General Motors is well known as one of Detroit’s ‘Big Three,’ the three biggest automakers in the US. Regarding Chinese tariffs, GM stands to benefit from cheaper imports of Chinese raw materials and an ‘open door’ to the Chinese auto market. About 10% of China’s car imports (280,000 units) come from the US.

GM faces the tariff issue from a position of strength. The company recently announced a restructuring, including elimination of the unpopular and expensive Chevy Volt hybrid electric vehicle, which has market watchers taking a more optimistic look at the company. Adam Jonas (Track Record & Ratings) of Morgan Stanley, gives GM a ‘Buy’ rating with a $44 price target, for a 15% upside from current levels.

GM stock currently sells for $38, with a 31% upside coming from the average price target of $50. The ‘Strong Buy’ analyst consensus is based on six recent ‘buy’ ratings.

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Caterpillar, Inc. (CAT – Research Report)

Caterpillar, as an international maker of heavy construction equipment, will benefit on both ends from a loosening in US/China trade. Cheaper imported raw materials will make their end products more affordable, and lower tariff barriers will make those same end products easier to market to China’s large construction industry.

Caterpillar, like much of the market, saw sharp drops in mid-October and mid-November. The company has managed to recover about half the total losses, however, and went into the weekend with a 4% gain in the Friday trading session.

USB’s Steven Fisher (Track Record & Ratings) said that a meeting with CAT dealers “confirmed that regional project activity remains solid and it is difficult for machinery providers to keep up with demand.” Fisher added that “there are signs that nonresidential activity may be flattening, but the public sector growth remains solid.” His price target of $160 suggests a 15% upside.

Meanwhile Credit Suisse’s Jamie Cook (Track Record & Ratings) concurs on CAT’s potential. His price target is $183, giving a 32% upside. Cook’s aggressive target suggests a more optimistic view of the company’s position. Cook has a 74% success rate when recommending CAT stock, with a 25% average return. Right now, CAT is trading at $138, and the 13% upside is based on an average price target of $158. The analyst consensus is a ‘Moderate Buy.’

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Boeing Company (BA – Research Report)

Boeing’s main business with China, like other industrial producers, lies in importing raw materials. At the same time, like CAT, Boeing has an opening to China’s import market – with lower tariffs, Boeing civilian aircraft will be better able to compete with China’s emerging native aircraft industry.

In Monday’s trading session, Boeing gained almost 4%. The company recently got a ‘Buy’ rating from Cowen analyst Cai Rumohr (Track Record & Ratings), who says production efficiency “is expected to drive cash flow per share to above consensus in 2019.” Rumohr’s price target, of $445, is 24% upside from the current share price of $359.

The analyst consensus on Boeing, even before the tariff announcement, was a ‘Moderate Buy.’ The company has benefitted from defense industry contracts, as well as strong orders for the 737-MAX airliner. Boeing’s average price target of $416 gives it a 15% upside potential.

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Apple, Inc. (AAPL – Research Report)

As one of the world’s largest tech stocks, Apple can stand in proxy for its industry. Lowering Chinese tariffs will mean easier access to the rare earth metals that most tablet and smartphone devices depend on, as well as a more competitive product to reimport to the Chinese high-tech market.

In addition, Apple in particular stands to make a gain: iPhones were on the list of goods set to come under the new tariff policy, and that has now been delayed by at least three months. A loosening of US tariffs on Chinese trade would directly benefit as much as 25% of Apple’s revenue stream. AAPL surged as US markets opened on Monday morning, and posted a 3.5% gain for the day’s trading.

The benefits are not limited just to Apple; companies in the tech giant’s European supply chain also gained, especially the Dutch firm STMicroelectronics and the Frankfurt-listed Dialog Semiconductor. AMS, a Swiss company that designs facial recognition sensors, also posted sharp gains.

Apple remains a ‘Moderate Buy’ in the TipRanks analyst consensus. JPMorgan analyst Samik Chatterjee (Track Record & Ratings) gives a bullish target of $266, and notes that “the current valuation ‘sets a fairly low bar’ on Apple shares.” He sees the current price as a chance to buy into AAPL at a bargain.

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