The trade conflict between the United States and China, which commenced March, is further intensifying as days progress. The U.S. stock markets have been facing severe volatility ever since primarily owing to imposition of various tariffs by the U.S. government and related trade conflict.

The situation is likely to aggravate in the near-term as President Trump has decided to implement the second phase with intentions of imposing tariffs worth $200 billion on Chinese exports. At this stage, it will be prudent to invest in defensive stocks to keep one’s portfolio safe from day-to-day market fluctuations.  

National Security Concerns Dominate Tariff Decisions

Trump administration is deeply concerned about China’s drive to unseat the United States as the primary developer and supplier of products in the fields of high-tech digital industries. Notably, most of the big manufacturers of these products are patronized by the Chinese government. These companies have become a serious threat to U.S. economic and military supremacy.

Information technology, telecommunications, and consumer electronics are the primary Chinese industries which have come under the first phase of 25% U.S. tariffs worth $50 billion. The first part of these tariffs worth $34 billion was implemented from Jul 6 and the remaining $16 billion of tariffs will be implemented within the next two weeks.

Further Tariffs on China

On Jul 10, the U.S. government released a list of 10% tariffs on Chinese goods worth $200 billion. The new tariffs will undergo a two-month review and hiring after which final decision will be taken. Last week, President Trump had threatened China that his administration may consider the possibility of imposing new tariffs worth $300 billion on China if it retaliates U.S. tariffs.

However, China has already retaliated with $34 billion of tariffs imposed on U.S. exports. Meanwhile, two rounds of meetings between high-level delegations of both governments took place in May. However, no proper resolution was reached. Further, President Trump’s intention of restricting Chinese companies from investing in U.S. tech firms to prevent technology export to China is likely to add fuel to the fire.

Our Top Picks

Stock markets are likely to remain volatile in near future due to trade concerns, geopolitical conflicts and maybe some sector-specific issues. At this stage, investment in defensive sectors such as utilities, consumer staples, and telecom will be fruitful.

We have narrowed down our search on five stocks with either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and strong growth potential.

The chart below shows the price performance of our five picks in the last three months.

(Click on image to enlarge)

Comtech Telecommunications Corp. (CMTL - Free Report) designs, develops, produces and markets innovative products, systems, and services for advanced communications solutions. The company sports a Zacks Rank #1. Comtech Telecommunications has expected earnings growth of 247.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.4% over the last 60 days.

Plantronics Inc. (PLT - Free Report) is a global leader in audio communications for businesses and consumers which allow people to simply communicate. The company sports a Zacks Rank #1. Plantronics has expected earnings growth of 18.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 19.9% over the last 60 days.

Atlantica Yield plc (AY - Free Report) owns, manages and acquires a diversified portfolio of contracted assets in the power and environment sectors. The company sports a Zacks Rank #1. Atlantica Yield has expected earnings growth of 583.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 26.1% over the last 60 days.

Algonquin Power & Utilities Corp. (AQN - Free Report) is a renewable energy and regulated utility company engaged in the ownership of power generation facilities, and water and energy utilities. The company sports a Zacks Rank #1. Algonquin Power & Utilities has expected earnings growth of 13.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.2% over the last 60 days.

Craft Brew Alliance Inc. (BREW - Free Report) is engaged in the business of brewing, marketing, and selling of craft beers in the United States. The company carries a Zacks Rank #2. Craft Brew Alliance has expected earnings growth of 192.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.1% over the last 60 days.